A Cornucopia of Earnings
By Carlo Longino, Thu Jan 27 22:30:00 GMT 2005

A slew of earnings reports from the mobile industry this week show handset makers generally doing well, while carriers are grappling with slowing growth in European markets.

Researchers Strategy Analytics say 200 million handsets were shipped worldwide in the fourth quarter and a total of 684 million were shipped in 2004, both record amounts. All the top six vendors, bar Siemens, saw shipments and market share grow year-on-year, and in the fourth quarter, and Strategy Analytics is predicting sales of 735 million handsets in 2005, with total annual growth slowing from 32% in 2004 to 8% in 2005.

Nokia saw strong sales in the fourth quarter, beating its own forecasts as well as analysts' quite handily on slightly increased sales. But investors were buoyed by the company's bullish outlook for the first quarter, when it expects sales to rise between 5.6% and 10% over last year, though some analysts labeled the outlook "conservative".

LG Electronics, which overtook Siemens for fourth place in market share in the fourth quarter, posted a profit on strong phone sales, shipping 13.5 million handsets in the fourth quarter, 14% more than in the previous quarter. The company expects its handset sales for 2005 to come in 40 percent higher than 2004, and also this week announced the establishment of a network equipment joint venture with Nortel.

As expected, Siemens' handset unit delivered lackluster results, with unit sales down 11 percent and average selling price off 13%, leading to a loss for the unit of 143 million euros, though the conglomerate as a whole posted increased profits. The company didn't announce a decision on the fate of its handset business, though Chinese upstart Huawei is the latest rumored buyer.

The challenge for handset vendors in 2005 will be on maintaining or increasing margins. Although total handset unit volumes are expected to grow, many expect the monetary value of the market to not keep pace. Indeed, in the fourth quarter, Nokia's sales volume grew 19 percent, but sales fell 6 percent, and LG's margins dropped from 7 percent to 5 percent in the fourth quarter.

Several operators have also delivered their quarterly reports. Vodafone added over 5 million users in its fiscal third quarter, and now has more than 150 million subscribers worldwide, giving it its highest growth rate in four years. ARPU slipped, however, in competitive markets like Germany and the UK, and Japan continues to weigh on the company's results. CEO Arun Sarin attributed the results to strong demand for Vodafone Live! and its 3G services.

T-Mobile also reported its latest subscriber figures, with the US again powering the carrier's results. The US unit added a million subscribers in the fourth quarter, and over 4 million for the whole year, representing more than half of all T-Mobile additions worldwide. T-Mobile's growth slowed significantly in the fourth quarter in its home German market, however.

MMO2's additions in Germany well outpaced T-Mobile, though it fell behind in the UK. The company's numbers in the UK were hurt because it cleared about 250,000 inactive prepaid users off its rolls, showing how the saturation of the UK market, where penetration is now over 100 percent, can crimp growth. The operator also said it would launch its 3G services in February.

Verizon Wireless, Vodafone's joint venture in the US, saw its fourth-quarter revenues increase 22% and its profits jump up 25% over last year, though its ARPU slipped to $50.32 as well. The carrier's data revenue increased a point from the previous quarter, though, and now makes up 5.6 percent of service revenues.

Cingular, which passed Verizon as the country's biggest carrier after its buyout of AT&T Wireless, posted a fourth-quarter loss of $497 million thanks to costs from the merger, though it did add 1.8 million new subscribers in the quarter to finish with 49.1 million. While Cingular's churn, at 2.6 percent, was much lower than pre-merger AT&T's 4 percent, ARPU dropped nearly 6 percent to $49.67, though 5.8 percent of that comes from data.

Over in Japan, KDDI said its fiscal third-quarter profits doubled as users flock to its 3G service -- where it isn't having to match the discounts its competitors are offering. Though its ARPUs have shrunk about 4 percent, that's less of a decline than DoCoMo or Vodafone are seeing as they migrate users to their 3G platforms.

Microsoft also reported its earnings today, its mobile and embedded unit narrowing its loss from $110 million in last year's fiscal quarter to $4 million this year, on revenues that increased 44% to $91 million.