A Mixed Bag
By Carlo Longino, Fri Jan 24 13:41:49 GMT 2003

Results came in this week from a number of mobile-industry companies, but investors were more anxious about their outlooks for the next quarter.

It was a busy week in the mobile industry, with several of the industry’s key companies announcing quarterly earnings. While the last quarter was kind to many of them, their outlook for 2003 is a little hazy.

Global mobile-phone leader Nokia issued strong fourth-quarter results, shipping a record number of handsets and reporting its highest ever market share. The Finnish company’s Q4 sales were up 0.6% over the previous year to EUR8.84 billion, while its net income more than doubled to EUR1.05 billion (though the year-earlier quarter did include a hefty goodwill writedown).

Global handset number two Motorola also reported higher sales and profits in its latest quarter, turning a net income of USD174 million on sales of USD7.55 billion, compared to a loss of USD1.24 billion on revenue of USD7.31 billion a year ago. The turnaround was boosted by better than expected overall sales, including a 27% shipment boost and an 11% rise in revenues at its handset division.

CDMA giant Qualcomm turned in outstanding numbers, reporting fiscal first-quarter income of USD241 million on USD1.1 billion in revenue, compared to USD139.2 million income on USD698.6 million revenue a year ago. Qualcomm continues to benefit from the strong uptake of next-generation CDMA technology, for which it controls many key patents. The California-based company is also being helped by exceptional growth in new CDMA markets like China and India.

Siemens, Lucent, and Nortel all also posted improved results, while chipmaker Texas Instruments widened its fourth-quarter loss but saw revenue jump 20% thanks to strong demand for its wireless chips.

On the retail side, Carphone Warehouse, Europe’s largest mobile phone retailer, posted strong fiscal third-quarter results that included the busy Christmas season. While investors expected a sales shortfall, the company’s revenues were up 9.1% over the previous year and profit jumped 6.9%.

Looking Ahead

While investors were keen to see this set of results – which were pleasing for the most part – they were also anxious to hear these companies’ views on the current quarter and coming year, which did their best to bring some clouds back into the industry.

The most troubling news was that Nokia, Motorola, and Siemens all reported declining handset prices, showing the introduction of pricey color-screen and advanced phones hasn’t made much of an impact. While handset manufacturers are counting on European and American consumers replacing their current phones with these newer, more expensive models, targeting low-income, developing markets like India will continue to hold average selling prices down.

And tech companies have always found it hard to counter consumer expectations that prices should go down over time, even if new features are added – look to the PC market for simple proof of this. Nokia in particular said slipping prices could push its current-quarter sales below last year’s, though CEO Jorma Ollila told analysts that prices should trend upwards after the first quarter, thanks to the release of new high-end models.

But Carphone Warehouse said MMS-capable handsets, particularly those offered as part of the Vodafone live! service sold very well during Christmas, and those sales have continued through the first part of January.

Carriers’ infrastructure woes didn’t grab a lot of attention, perhaps as a result of incredibly lowered expectations. But Lucent CEO Patricia Russo told Reuters the telecom equipment market may be “closer to stability,” and the company said it expects fiscal second-quarter sales to rise by 20 percent on a strong demand for its wireless products. Keep in mind this is the same Lucent that lost USD 12 billion - roughly the gross domestic product of Nicaragua - in fiscal 2002.

In Other News…

It wasn’t all fun with finance this week, after all, would the week really count if a European government didn’t turn the screws just a little tighter on mobile operators?

The UK telecoms watchdog Oftel this week backed up the country’s Competition Commission and ordered mobile operators to immediately cut their “termination charges” or what they charge other operators for calls to their networks. The operators, of course, all protested, with O2 saying the loss in revenue means it will have to push back its 3G launch until 2004 (I didn’t know the English affinity for fish and chips extended to red herring).

Also in the UK, virtual operator Virgin Mobile said it popped its profit cherry, earning its first-ever profit in 2002 on particularly strong Christmas sales that sent the company past its subscriber goals. It also reported a prepay ARPU of GBP136, the second highest in the country, bested only by T-Mobile, whose network it uses.

And on a lighter note, file this under “Duh”: Porn mogul Charles Prast of the Private Media Group told Reuters this week that porn will be 3G’s saving grace, accounting for 80 percent of its initial traffic, then leveling off around 20 percent. This is backed up with analyst projections that the global smut market will be around USD70 billion in 2006, with USD4 billion of that coming from mobile services and content, leaving me with just one question – how exactly does one become a porn analyst?