On the rebound

You know what it's like when you get dumped by that beautiful woman, or handsome man (or both, the Informer's not judgemental). You feel like you're never going to be happy again. You keep hearing that song on the radio, the one that was playing when you first met. Everywhere you turn, happy couples shine the blinding light of their contentment into your eyes, which are red and sore from the sleepless nights of weeping. It can be a time of low self-esteem. The danger is always that you'll throw yourself into a new relationship; anything to prove that you can still be loved.

April 25, 2008

9 Min Read
On the rebound

By The Informer

You know what it’s like when you get dumped by that beautiful woman, or handsome man (or both, the Informer’s not judgemental). You feel like you’re never going to be happy again. You keep hearing that song on the radio, the one that was playing when you first met. Everywhere you turn, happy couples shine the blinding light of their contentment into your eyes, which are red and sore from the sleepless nights of weeping. It can be a time of low self-esteem. The danger is always that you’ll throw yourself into a new relationship; anything to prove that you can still be loved.

When strapping Nordic billionaire Nokia walked out on his German Frauline Bochum for a lower rent Romanian – not unlike a handset manufacturing version of Lembit Opik – the town got a little upset. It badmouthed its one-time lover, demanded a substantial payout, vowed never to use its products again and honked noisily into its handkerchief in a public display of anguish.

But someone new has come along. Ok, so maybe he’s not as rich as Nokia. Maybe he doesn’t have 40 per cent handset market share. But maybe he’s more dependable, a nice solid Canadian. That’s right, Research In Motion, having eyed Nokia’s departure, has announced its intention to establish itself in the German town, in the form of an R&D centre that will employ 140 locals, with the possibility of a further 500 jobs being created down the line. It seems to have cheered the spirits of the German town, and the North Rhine Westphalia region in which it sits. The Informer’s only advice to Bochum is to make sure it gets a cast iron pre-nup.

Maybe Sony Ericsson should relocate to Romania as well, spurred on by the drab results that it had already promised would be forthcoming. The fourth ranked handset vendor posted net profit of Eur133m for Q1 this year, not much more than half of what it made in the same period in 2007, which was Eur254m. Sales were down by only eight per cent, to Eur2.7bn, while shipments – at 22.3 million units – were up two per cent on Q1 last year. It’s all about the margins, right?

We shall remain slumped listless in the handset doldrums for a few desolate paragraphs as we move onto Motorola’s results. What with Motorola announcements starting to resemble the telecoms equivalent of an endless Leonard Cohen song, you won’t be expecting a lot of sunshine, will you? So, with a cold and a broken hallelujah, here we go:

There was more pain for shareholders, with Moto increasing its net loss for the first quarter to $194m from $181m in the same period a year ago. Sales also dropped from $9.4bn in 2007 to $7.4bn in the three months to the end of March.

The handset division almost doubled its operating loss from $233m to $418m, as sales dropped 39 per cent to $3.3bn. During the quarter, the company shipped 27.4 million handsets, down from 39 million in the final quarter of 2007.

There’s nothing like taking joy in the happiness of others for a spiritual boost, and Sony Ericsson and Motorola alike will doubtless be gladdened by the news that Apple has boosted its Q1 profits by 30.5 per cent this year, hitting $1.05bn. Revenues were up 43 per cent to $7.5bn. Q1 saw Apple shift 1.7 million iPhones (worth $378m), understandably down from the pre-Christmas quarter total of 2.3 million.

Samsung Electronics was doing well, meanwhile, turning in Q1 profits up 37 per cent to $2.4bn, not least because of solid handset sales – which the firm reported were in excess of 46 million units.

This is the sort of thing that should bring a smile to the face of a company chairman. Unfortunately, the chairman of Samsung Group, Lee Kun-he, resigned this week after he was charged with having what will from here on in be known as a Snipes Moment, and evading taxes. He has admitted nothing, of course, but conceded that it wasn’t particularly hot PR. Samsung meanwhile, while admitting nothing, has pledged to clean up its act.

Now here’s one of those things that makes the financial community seem a bit daft. Ericsson turned in some pretty rotten Q1s this week, reporting a drop in profits of 55 per cent to SEK2.6bn. But its share price surged by 21 per cent, purely because things weren’t as bad as they could have been.

This is a tactic often employed by children during exam times, of course. You come home shaking your head, telling your parents you think you had a disaster. Then when your results come in – adequate if not distinguished – they’re overjoyed that you didn’t fail and they see the results in a positive light, not as a disappointing performance from someone who could have done really well, if only they’d tried harder. So there you go, the financial community works like the mind of a child.

Ericsson president and CEO, Carl-Henric Svanberg, said that sales in the Networks division grew by two per cent year on year despite a negative impact from the decline of the dollar. The company witnessed increased sales of GSM in high growth markets, especially China and India. The company also benefited from ongoing 3G rollouts, including major rollouts in Russia and Latin America.

Ericsson will be cashing in on several major operators’ plans to upgrade their networks to 14.4Mbps and the company will introduce 21Mbps during the second half of the year. “Our business developed well in the quarter, considering the present market environment and the declining USD,” said Svanberg. “We still find it prudent to plan for a flattish mobile infrastructure market in 2008. The ongoing cost reductions as we adjust to such a scenario are running according to plan.”

Managed services continued to do well, with revenues increasing 20 per cent year on year, while sales in Professional Services grew by eight per cent.

Perhaps the managing expectations trick is what Blyk was up to with its subscriber forecasts. This week the ad-funded UK MVNO announced that it had hit its 100,000 subscriber target six months ahead of schedule.

One handset that would be absolutely no use to Blyk subscribers is that produced by Hop-on. It’s a disposable device without anything so new-fangled as a display, that should sell for around $20. The firm said this week that it had received orders for 150,000 units in Europe, although it didn’t name the interested party. Peter Michaels, president of Hop-on said, “We are getting so many inquiries about the ‘disposable cell phone’ in Europe and the Middle East, we will be hiring additional support to meet the market demands.”

Michaels said the firm lacks the resource to target the US market at the moment, where this week AT&T wireless was concentrating more on disposable staff than disposable phones. The carrier is downsizing its workforce by 1.5 per cent, which translates to 4,600 heads. It said that the redundancies would primarily affect workers not in customer-facing roles, which could see some middle management in the ejector seats.

Vodafone, meanwhile, is focused more on reducing its carbon footprint than its headcount. The Big V said this week that it is targeting a 50 per cent cut in its CO2 emissions by 2020, from the 2006/7 figure of 1.23 million tonnes. Instead of carbon offsetting, which many people feel simply shifts responsibility rather than actually solving the problem, Vodafone is going to look at direct action.

“We have reviewed the options, including carbon off-setting, and have concluded that the most effective strategy is to cut our CO2 emissions directly. There are no simple solutions to what is a complex challenge, but through operational changes and technological innovation we will focus on improving energy efficiency in our networks, which account for 80 per cent of our emissions. We will use renewable energy when and where we can,” said CEO Arun Sarin.

Sarin, was this week named in a survey as the most powerful person in British telecoms and technology. On Thursday, UK newspaper The Telegraph ran a Top 100 list of the most powerful people in British business, which placed Sarin at the top. The list is dominated by telecoms executives. Sarin was followed by Ian Livingston, future chief executive of BT, and Charles Dunstone, co-founder of the Carphone Warehouse.

Cable & Wireless executive chairman John Pluthero takes the fifth spot, followed by O2 UK chief Matthew Key, outgoing BT leader Ben Verwaayen, Orange UK chief Tom Alexander and another Cable & Wireless chairman, Richard Lapthorne.

Back to the US, where changeling NextWave is looking to sell off a bunch of spectrum that it never used. There can’t be many aspiring operators that move into manufacture, but that’s just what Nextwave did. Originally, NextWave fancied itself as a wireless broadband player but got into trouble and only emerged from Chapter 11 bankruptcy protection in 2005. The company switched tactics and began developing chipsets and related network and device products based on the IEEE 802.16e WiMAX standard.

Now it wants to monetise its spectrum assets – not really necessary for a manufacturer, after all – and has retained Deutsche Bank and UBS Investment Bank to maximise the revenues. The company’s spectrum footprint covers over 251 million people and includes major markets such as New York, Los Angeles, Chicago, San Francisco, Boston, Philadelphia, Denver, Houston, and Detroit. NextWave holds spectrum licenses in the 1.7/2.1GHz band, the 2.3GHz band, and the 2.5GHz band.

As a WiMAX player, NextWave will doubtless be saluting Intel’s decision to hurl $500m at the Taiwanese WiMAX community over the next five years. Taiwan has six regional WiMAX licence holders and it’s understood that Intel will be focusing its spend on ensuring interoperability between them for effective national roaming. In other WiMAX promo activities, Intel has commissioned a reworking of a 1973 song called Radar Love by Dutch rock band Golden Earring. The adapted version is called WiMAX Love.

Fellow chip vendor Qualcomm turned in some characteristically upbeat financials this week, meanwhile. It was a record quarterly score, with net profit up six per cent to $766m. Revenue was up 17 per cent to $2.6bn, and the company shifted 85 million MSM chipsets, which is a year on year growth rate of 39 per cent.

And finally, a firm marketing batteries that emit an interference signal which it claimed would prevent damage to the brain from The Rays!!! has had its UK operation shut down. Exradia claimed this was motivated by corporate streamlining and had nothing to do with the fact that it’s a load of old cobblers.

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