Weekly Wrap: The Proof is in the Margins
By Carlo Longino, Fri Apr 18 14:49:52 GMT 2003
Earnings announcements, Wi-Fi phones, and more...
A couple of big players released their first-quarter earnings this week, giving optimistic views on their handset businesses for the year, while their infrastructure businesses continued to struggle. Motorola reported its third straight quarterly profit - USD 169 million in the first quarter, compared to a loss of USD 449 million a year earlier. Revenue at the company's handset unit, its biggest, were up 2% and Motorola said its global handset market share increased to 19%.
What's interesting, though, is handset shipments increased 18%, revealing a shift towards low-end handsets and a dropping average selling price. The company also said it saw declining sales in China, where it's the market leader, but it expects to see growth at the unit overall in the second half of the year. It also added it sees 430 million handsets being sold worldwide, at the low end of previous estimates. Network equipment sales continued to slide, off 12%, while orders were down 28%.
Global handset leader Nokia also announced its first-quarter results this week, and it was more of the same: the company's dominant handset unit offset the hemorrhaging in its struggling network business. The company overall posted a profit of EUR 977 million, up 13% from last year's first-quarter gain of EUR 863 million. Handset sales were up 1% year on year, while shipments were up 13%, showing some similar erosion in average price. Nokia stuck to its prediction that the global handset market would grow by 10 percent this year to about 440 million, and predicted strong growth in its sales to come from CDMA handsets in the Americas, China, and India.
News at its handset business remained bleak, with sales off 15% from last year and the company predicting a 15% drop in already-depressed network sales for the full year. So how does Nokia manage to keep raking in the dough where its competitors struggle? Handset margins. Nokia's profit margin on handsets in the first quarter was 24%. Motorola's was 4%. Given the company's huge lead in volume, that's a substantial advantage.
Texas Instruments, the leading maker of mobile-phone chips, also reported a first-quarter profit this week, as did tech bellwethers Microsoft and Intel.
The saga of mmO2's Dutch unit came to an end this week when the carrier sold it to private investor group Greenfield Equity Partners for a paltry EUR 25 million, writing off about EUR 2 billion it had invested in the venture. Keep in mind that sale price is less than a tenth of what O2 paid for a Dutch 3G license, something the newly independent O2 Netherlands (which will likely change its name back to Telfort) plans to utilize.
This has a few interesting ramifications. First, it heightens suspicion that O2 and KPN will merge to form a pan-European carrier, as the sale removes a potential regulatory hurdle since KPN is the leader in the Dutch market. Barring a full merger, KPN is looking the most likely buyer for O2's German unit. Second, the rock-bottom sale price injects a dose of reality into carriers' balance-sheet valuations of their companies. For example, mmO2 keeps its German operations on its books for GBP 7.5 billion, GBP 3 billion more than the company as a whole. Don't expect O2 Germany, should it be sold, to fetch anywhere near that price.
Closing out this week's wrap is the news that Cisco has released its first Wi-Fi phone. But hold yer horses, it's not gonna replace your cell phone just yet. It's intended for companies using Cisco's enterprise VoIP system, and isn't made for use on other Wi-Fi networks, so leave it in the office. This isn't the first Wi-Fi phone, Symbol released one a few years back, but it's sold about as well as those funky marshmallow yellow chickens you see this time of year...