How much do phonies make?

In early April, Blackberry maker Research In Motion Ltd. (RIMM) reported a 26% rise in fourth-quarter earnings to $518.3 million or $0.90 per share, helped by strong sales of its smartphones and early success of its new products. The Waterloo, Canada-based company's revenue for the fourth quarter jumped 84% to $3.46 billion.

On Thursday (April 16), Nokia the world's largest mobile phone maker, reported a 99.7% decline in first-quarter profit, due to a sharp decline in Devices & Services net sales. The company suffered double-digit rate of decline (fell 19% to 93.2 million units) for the mobile phone market in units and a one-third year-over-year revenue reduction.

Since then there hasn’t been any flow of good news from the major mobile phone manufacturers (Nokia, Motorla, Ericsson). On Friday (April 24, 2009), Sony Ericsson Mobile Communications AB reported a loss in its first quarter again due to a sharp decline in net sales, resulting from lower unit shipments and prices.

Motorola Inc. (MOT) is slated to release its first-quarter results on Thursday, April 30. The company expects a loss in the range of $0.10 to $0.12 per share for the first quarter, excluding items. Analysts polled by Thomson Reuters expect the company to post a loss of $0.11 per share on revenues of $5.56 billion. Analysts' estimates typically exclude special items.

Common story across the mobile manufacturers – weak consumer demand and de-stocking

According to Nokia the estimated industry mobile device volumes declined 14% year-over-year to 255 million units, and Nokia mobile device volumes fell 19% to 93.2 million units. Nokia's estimated mobile device market share was 37% in the first quarter, down from 39% in the last year. Nokia's mobile device average selling price, or ASP, was E65, down from E71 euros a year ago. The company recorded a negative E118 million attributable to minority interests in the first quarter compared to last year's negative E22 million.

For Ericcson, units shipments were 14.5 million, down 35% from 22.3 million in the previous year, and down from 24.2 million units in the preceding quarter. Average selling price, or ASP in the quarter was E120, down 1% from E121 a year ago. Gross profit fell 82% year-over-year to E145 million, and gross margin in the quarter was 8%, lower than last year's 29%, reflecting a change in the product mix, material write-offs, and exchange rate volatility. The company posted an operating loss of E369 million in the quarter compared to an operating profit of E184 million a year ago, as operating expenses fell 13% to E528 million. Operating margin was a negative 21%, compared to prior year's positive 7%.

Excluding restructuring charges, the operating loss in the first quarter was E357 million.
How the competitive landscape is changing?

Recession or economic boom people still want/buy P2P communication solutions. But it is a matter of trading-up or trading-down. For instance, for the last few months consumers have been demanding integration of solutions, devices and services together.

Apple understood this trend and galvanized the handset world with its iPhone. The main things that set it apart are its amazingly simple user interface and its operating system. Since the launch of iPhone, there has been a flurry of activity in the handset market with ore handset makers moving towards the convergence device trend. In response to iPhone Nokia a touchscreen 5800 XpressMusic smart phone called the Tube, right on the heels of HTC’s G1 phone on Google’s Linux-based Android platform. The Nokia 5800 is believed to have seen very strong demand in every country, where it was launched. Already in Q1, the 5800 was Nokia’s number one revenue and gross margin generating product and was the number one volume and value product in the UK. The success of Nokia 5800 XpressMusic is partly attributable to its packaging with Comes With Music service. Research in Motion (RIM), the king of the prosumer market, also launched a touchscreen model, Thunder. Samsung has been winning customers by doing well on the hardware design. Motorola which has products on several platforms: its own Linux-based MOTOMAGX, Microsoft Windows Mobile 6.1, Qualcomm’s BREW, Symbian, and the Symbian-based UIQ. Motorola clearly needs to focus, as it has been losing market share (slipped from the No.2 to the No.3 position). Right now the battle turf is active on the smartphone market.
Industry Outlook

Motorola which is yet to report its first quarter earnings recently had said that total pre-tax charge in the first quarter of 2009 would be about $229 million, comprising $216 million in charges for severance costs relating to approximately 5,600 employees and $13 million in charges for exit-related activities.

According to Sony Ericsson and Nokia the global handset market for 2009 will contract at least 10% from around 1,190 million units in 2008. The industry ASP will continue to decline in 2009, particularly in the first half.

Nokia is still optimistic about its profitability eves and the company projects that its operating profit will be more than 10% in the first half 2009 and improve to touch the teens for the second half 2009.

Major mobile manufacturers continue to target an increase in their market share in mobile devices in 2009 in order to derive economies of scale benefits. They are also pursuing proactive cost saving programs.

For instance, Sony Ericsson announced that it has completed its initial cost saving program, announced in July last year, targeting annual operating expense reductions of E300 million by the end of the first half of 2009, including a workforce reduction of 2,000. A total of E187 million restructuring charges have been recorded compared to the initially estimated costs of E300 million. In January 2009, the company had initiated the second cost saving program to target annual operating expense reductions of E180 million by the end of 2009. The cost of the program will be covered by the initial E300 million restructuring costs announced in July 2008. The additional cost saving program is expected to result in a further reduction in the global workforce of approximately 2,000 people. The company also estimates that it will need new restructuring charges of E200 million to complete the program.

The currently depressed mobile phone market many only be a result of transitory cyclical factors, but it also reflects market saturation in most regions. The fast growth of the past years in which Nokia and other manufacturers had benefited from superior scale and efficiency might not be restored and a slow growth environment may not allow Nokia and other major manufacturers to return to levels of profitability and free cash flow generation experienced in the past.

It is not all that gloom and doom in the mobile manufacturing sector. The demand for high-end smartphones still continues to be high. This is particularly true in the U.S. as sales of high-end devices continue to be brisk. As a result, the industry continues to be upbeat despite a maturing market and global recession. In particular, Samsung Electronics Ltd. and LG Electronics are expected to continue their momentum in the U.S. Nokia Corp. (NOK) could also see growth as it makes a more concerted effort to work with the U.S. carriers. The vendor, traditionally weak in this region, touted AT&T Inc.'s (T) support of its E71x smartphone. The company is working to develop phones specifically for the U.S. market, rather than push its global devices.

The most successful companies continue to be the smallest. Apple Inc. (AAPL), Research in Motion Ltd. (RIMM) and HTC Corp. (2498.TW) are expected to dominate smartphone sales, while embattled Palm Inc. (PALM) is poised for a comeback with its buzz-catching Pre. RIM continues to make strides with its Blackberry portfolio, despite a few product missteps. The company hopes the App World application storefront will help its phones appeal to more consumers. Apple also continues to climb the handset vendor rankings, despite selling just the iPhone through AT&T, and will likely see sales jump again once the next version is introduced.

Right now the sector seems to be in a state of blood bath with smaller and nimble players calling the shot. Currently, Nokia’s stock is trading at $14.16, up by 67% over its 52 week low price and down by 54% over its 52 week high. It is not just Nokia that is yet to set a new 52 week high, all the major mobile manufacturers are yet to scale new 52 week highs. May be the tide will turn favorable in 2010. Until then it is a wait and watch game.

Info courtesy : istockanalyst.com

Samsung faces the crunch

South Korea's Samsung Electronics has reported a 72% drop in quarterly profits after more losses at its microchip and LCD television divisions.

For the three months to 31 March, its net profit fell to 619bn won ($458m; £330m) from 2.2tn won a year ago.

However, the results were better than market expectations and an improvement on the group-wide losses reported for the last three months of 2008.

Losses at its semiconductor unit hit 650bn won between January and March.

The loss at the LCD television unit was 310bn won.

Samsung said both profits and sales at the two divisions had been hit by the continuing global economic slowdown.

By contrast, profits at its mobile phone handset business rose 2% to 940bn won as sales held up.

"The global economy is likely to continue to recover in the second quarter, but lingering uncertainty means it is difficult to predict a sharp improvement in demand or the business environment in the near term," said Robert Yi, Samsung's head of investor relations.

Samsung is South Korea's largest company and is the world's biggest producer of microchips.

Its net loss for the October to December period totalled 22.2bn won.

Image and info courtersy : BBC