Sunday 3 August 2008

Q2 Revenues for the major Telecomms Companies

With the Quarter 2 (Q2) just gone everybody concerned in the telecoms industry are waiting for the Q2 results from the major telecoms giants. By looking at the current state of the economy and with the entire credit crunch problem, there is some nervousness regarding the growth expectation in the telecoms area.

In the past few weeks most of the telecoms giants has announced their Q2 earning. I must say the results don’t look too bad and I will not be quoted wrong when I say that some of the investors have breathed a sigh of relief. There is no doubt that little bit of tricky times might be head but overall growth forecast for Q3 are encouraging.

First of all let me tell you about the major shock of the Q2.

Ericsson and Alcatel-Lucent has really got lot to do after their Q2 results. Although expected, Swedish telecoms giant Ericsson reported a fall of 70 per cent in its second quarter profits. The company blamed the fall on the high cost of shedding staff and falling handset sales by its Sony Ericsson joint venture. Sony Ericsson reported that its second quarter pretax profits were 8 million euros compared with 327 million euros a year earlier and announced plans to cut 2000 jobs worldwide.

But Alcatel-Lucent was the most shocking when it announced a humongous $1.7 billion second quarter loss. CEO Patrica Russo and chairman Serge Tchuruk who together orchestrated AlcaLu’s merger two years ago has already said that they’ll step down by year’s end.

The size of the loss, the sixth straight quarterly red ink since the merger has stunned analysts who had expected less painful news. The company said $1.27 billion of the loss was due to a write-down of AlcaLu’s North America CDMA technology business.

The company also is trimming its board, dumping former Lucent CEO Henry Schacht.

I must admit that as one of the giants of telecoms world the above results looks very disappointing. What is more worrying specially for Ericsson is the fact that it’s sales in Western, Central and Eastern Europe, the Middle East, Africa and Asia Pacific were all down by varying degrees. The only positive news came form America where its sales in North and Latin America were up.

TeliSonera on the other hand reported a 5.7 percent increase in sales for the second quarter and revenues of $1.3 billion, up some 6 percent from a year ago. TeliaSonera said it expects stable growth for the remainder of 2008 which is indeed good news for the investors.
The Nordic telco, which spurned an attempted takeover earlier this year by France Telecom said margins for broadband services in Sweden were under pressure, hurt by the growth of mobile broadband services. CEO Lars Nyberg told Swedish radio news that he backed the board's earlier decision to reject a bid from France Telecom."I am glad that we can continue to grow on our own," Nyberg said.TeliaSonera and its associated companies had some 122.9 million customers in the quarter, up 19.3 per cent from the end of the second quarter 2007.

First look at AT&T's earnings for Q2 showed that perhaps we did not have to worry about big, old AT&T after all. Many industry analysts had been watching the telco's second quarter numbers for signs of weakness that might portend further weakness for the industry at large, but AT&T issued a report marked by an increase in net income, strong wireless performance and continued progress with U-verse and wireline IP efforts.
For the second quarter, the company's net income hit $3.8 billion, or $0.63 earnings per share, up 34 percent from the same quarter last year. Revenue reached $30.9 billion, an increase of 4.7 percent. Wireless data revenues were up 52 percent, and wireless postpaid subscriber churn came in at 1.1 percent, a quarterly record for AT&T. Wireline IP data revenues increased 16.1 percent. U-verse subscriber additions amounted to 179,000 for the quarter, giving AT&T a total U-verse subscriber tally of 549,000.

There are good results from Vodafone as well. I have always been impressed with Vodafone as a company. Vodafone has always got ideas in its sleeve and it always come with some aggression and beat the general trends in the market. The Q2 results of Vodafone were again boosted mainly by the emerging markets where the only big disappointment came form Spain.
Some of you might remember, recently when Vodafone announced that it would feel the effects of the global downturn, its share price went down by 14 per cent, the largest fall in Vodafone history.
The company reacted to this fall by announcing a £1 billion buyback. However, this warning by the outgoing CEO, Arun Sarin, that the outlook was less than rosy might have disguised some hidden gems within Vodafone's arsenal of revenue generating resources.
Sure, the sharp decline in the Spanish market hit the company badly as did the lacklustre results from the U.K. But both are very mature markets and consumers in both countries are reining back on all expenditures. The revenue growth high spots were the emerging markets, namely Eastern Europe, the Middle East, Africa, Asia and Pacific which was up 30.9 per cent, supported by growth from India of more than 50 per cent. Overall, Vodafone reported a 19.1 per cent revenue growth to £9.8 billion for the three months to the end of June 2008-and added 8.5 million subscribers.
I always like the aggressiveness that Vodafone has got when it comes to revenue generation. This was once again proved evidently when Vodafone announced the 50 per cent rise in Q2 revenues from its data services. This shocking 50% rise is after the number of its customers using the web from mobile devices was more than doubled. Data revenue for the quarter stood at £664 million globally, compared with £441 million for the same period last year. The CEO of Vodafone Germany, Friedrich Joussen, was also upbeat claiming that, although revenue fell slightly in the second quarter, due mainly to regulatory causes, "it won't be long until we see growth again."
There are also growing indications that the company is seriously considering an offer for freenet's DSL business. "We are taking a very close look at it," said Joussen, adding that a purchase couldn't be ruled out. Vodafone Germany doesn't necessarily need acquisitions as its organic growth is strong, Joussen said.

Nokia also posted better that expected results for Q2 after having previously forecast that the cell phone market would grow by 10 per cent. The CFO of Nokia, Rick Simonson, has indicated that, with half a year visibility, Nokia would be able to post growth of 10 per cent or more. This upbeat assessment comes after the company good results for the second quarter which pushed Nokia's share price up by eight per cent--albeit that the company's share price had plunged about 40 per cent this year amid concerns the mobile industry would suffer as the credit crunch and inflation took their toll.

There is no doubt that everybody's affected by the economic reality and Nokia and its customers are no different. But in my view Nokia have an ability to play all markets where some markets are growing strongly, some not so strongly. That is the beauty of Nokia where it’s not trapped to one market only.

During the posting of the Q2 results, Nokia's CEO, Olli-Pekka Kallasvuo, added to Nokia’s optimistic outlook by stating that the company had received good feedback about the broad range of new products it expected to sell in its handset business. Last week, Nokia indicated that increased demand from Russia and India would help it achieve continued growth this year.
LG Electronics is forecasting a tough third quarter despite posting positive results for the second quarter. The handset vendor said it is facing slowing shipments to emerging markets and higher competition in developed markets.

The handset maker, which ranks fourth in the handset market in terms of global shipments, said revenues grew 39 percent from the year-ago quarter to $3.7 billion, which was more than one-third of the parent company's revenue in the second quarter. The division reported an operating profit of $531 million, up nearly 12 percent over the year-ago quarter.
By looking at the above Q2 results I feel highly optimistic for good times ahead. Verizon Communications support my view further when it announced its second quarter earnings rose 12 percent, galvanized by 45.3 percent year-over-year wireless data growth. Verizon Wireless added 1.5 million net customers in Q2, bringing its overall subscriber total to 68.7 million.

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