Smartphone production forecast to drop by 16.5% in Q2

Taiwanese analyst firm TrendForce has been having a look at the effect of the COVID-19 pandemic on the smartphone supply chain and concludes it has had a significant impact.

It found global smartphone production (most of which takes place in China and the Far East) fell by 10% in Q1 2020 to 280 million units. Despite China claiming to have largely shaken the virus off by April, Trendforce reckons Q2 will see an even bigger drop-off in smartphone production – down 16.5% to 287 million units. For the full year it’s forecasting an 11.3% decrease to 1.24 billion units.

While Samsung is the global market leader, it doesn’t have much of a presence in China and, we’re told, does most of its smartphone production in Vietnam and India. So while its supply wasn’t constrained by the factory closures in China, it has chosen to dial down supply in response to anticipated softening of demand in its biggest markets.

Conversely Huawei is increasingly reliant on the Chinese market as US sanctions hit its ability to make smartphones anyone would want elsewhere, so its smartphone production could also be affected by demand. Apple production was apparently hit to the tune of 9% in Q1 but is expected to recover this quarter, depending on demand in the US and Western Europe. Of the other big Chinese vendors Vivo somehow managed to increase its production in Q1 somehow.

Google and Apple begin testing COVID-19 exposure notification API

Just a couple of weeks after revealing their intention to collaborate over a contact tracing app, Google and Apple have made the first API available to developers.

There doesn’t seem to have been a formal announcement, but plenty of US tech media such as Tech Crunch and the Verge are reporting on it, implying they have been notified directly. It’s being called the ‘exposure notification’ API, which seems to be designed to provide a more specific description as well as making the whole thing sound a bit less intrusive and Orwellian.

The reports say more details will be made available tomorrow, but access to the code will remain limited to public health authorities. While this creates concerns about how the apps will function, especially with respect to privacy, it also makes sense as a fragmentation of the contact tracing app ecosystem would massively diminish the effectiveness of each one.

The political implications of this unprecedented collaboration between the two companies the dominate the global smartphone market aren’t limited to privacy concerns. Opinion is divided about whether the decentralised approach advocated here or a centralised one in which governments gather data from smartphones is best.

While it may lose some of the public communication tools offered by the centralised approach, we feel the Google/Apple approach is better for the simple reason of trust. If people think a contact tracing app will be used to spy on them and arbitrarily punish them, they’re much less likely to install and use it. The efficacy of such an app relies on the participation of a large proportion of the population, so the number one priority should be maximising uptake.

Orange, Proximus and KPN feature in a tsunami of financial results

Today has seen an avalanche of financials fall on the industry, as Orange, Proximus, Millicom, Ooredoo, Swisscom, Telenet and KPN all release earnings statements.

Orange Group quarterly financials (to March 31, 2020) – Euro, millions
Metric Quarterly total Year-on-year growth
Revenue 10,394 +1%
Operating profit 2,602 +0.5%
CAPEX 1,580 -3.1%

“During this first quarter, the final weeks of which were struck by an unprecedented crisis linked to the Covid-19 pandemic, the Group continued its growth momentum in terms of revenues (+1.0%) and EBITDaL (+0.5%),” said Orange Group CEO Stéphane Richard.

“This growth has been underpinned by strong performances in our Africa & Middle East business, progress in the Enterprise market, in France and in Europe.

“The importance of telecoms in this crisis in ensuring the continued functioning of the economy and of our societies confirms the strategic nature of our activities and provides further confirmation for our strategy in very high-speed networks.”

Proximus Group quarterly financials (to March 31, 2020) – Euro, millions
Metric Quarterly total Year-on-year growth
Revenue 1,393 -1.5%
Operating profit 464 +0.3%
CAPEX 232 +5.9%

“With most of Proximus’ business showing a good level of resilience in these exceptional circumstances, along with our strong cost management, we realized stable EBITDA,” said Guillaume Boutin, CEO of the Proximus Group.

“It’s clear we are not fully immune to the ongoing COVID crisis, and we expect the impact to become more apparent over the next quarter. The economic recovery remains uncertain and especially Roaming and ICT projects are exposed to further negative effects.

“While it’s very difficult to have a clear view of what the overall impact will be, so far, there are no signs the financial effect would be worse than what we have anticipated, with the EBITDA effect largely being offset by a lower capex. We therefore reiterate our 2020 full-year guidance of Group EBITDA Capex of EUR 780-800 million.”

Millicom quarterly financials (to March 31, 2020) – Euro, millions
Metric Quarterly total Year-on-year growth
Revenue 1,088 +5.1%
Operating profit 134 -17.1
CAPEX 174 +3.4%

“In light of the severe impact that COVID-19 is having on the global economy and in many of our markets, we have already implemented significant measures to help us navigate through these challenging times, which we anticipate will impact our revenue at least through the remainder of 2020,” said Millicom CEO Mauricio Ramos.

“These measures include a reduction in capex made possible by focusing largely on adding network capacity while deferring other investment plans, and the implementation of new cost savings initiatives.”

Ooredoo Group quarterly financials (to March 31, 2020) – QAR, millions
Metric Quarterly total Year-on-year growth
Revenue 7,295 +1%
Operating profit 3,023 -5%
CAPEX

“In Q1 2020 Ooredoo Group has increased our revenue and we have delivered good results Growth was driven by strong performances in most of our markets, and in particular in Indonesia and Tunisia where revenues grew 7% and 16% respectively, supported by Indosat Ooredoo’s refreshed strategy and the implementation of Ooredoo Tunisia’s value creation plan,” said Group CEO Sheikh Saud bin Nasser Al Thani.

“Business in Myanmar has been growing as well. Ooredoo Qatar continues to be our highest revenue generator, reporting QAR 1.8 billion in total revenues for Q1 2020.

“The implementation of nationwide lockdowns across many of our geographies impacted EBITDA as margins came under pressure due to changing customer behaviour. EBITDA for Q1 2020 was QAR 3.0 billion compared to QAR 3.2 billion for the same period last year. We continue to implement strong cost optimisation programmes across all our OpCos to manage some of the impact from the pandemic and weakening economic activity.”

Swisscom quarterly financials (to March 31, 2020) – CHF, millions
Metric Quarterly total Year-on-year growth
Revenue 2,737 -4.3%
Operating profit 1,111 -0.7%
CAPEX 516 -0.4%

“The market environment is challenging. But Swisscom’s results are sound, given the circumstances. The demand for our bundled offerings continues. Our network is the foundation of our success. This is evident in the current COVID-19 crisis,” said CEO Urs Schaeppi.

“Meetings via video conference in the home office, distance learning in the children’s room and contact with friends via telephone and FaceTime are now part of everyday life – with corresponding effects on the infrastructure.

“We recorded 70% more mobile phone calls in March than in the previous month. And in the fixed network, we reach peak levels every evening at prime time with TV and streaming services. Before the crisis, this only happened on Sunday evenings. Swisscom’s networks are continuing to hold their own, even at this time.”

Telenet Group quarterly financials (to March 31, 2020) – Euro, millions
Metric Quarterly total Year-on-year growth
Revenue 653 +4%
Operating profit 153 +2%
CAPEX 172 0%

“Against the backdrop of these current exceptional circumstances, I’m pleased with the solid underlying operational performance in Q1, continuing the improved momentum we’ve seen since the second half of last year,” said Telenet CEO, John Porter.

“While gross sales have clearly decreased since the closure of our retail stores as of mid-March, this effect was more or less compensated by lower annualized churn. We had a particularly strong quarter in broadband, adding 8,100 net new subscribers and marking our best quarterly performance since Q2 2016.”

KPN quarterly financials (to March 31, 2020) – Euro, millions
Metric Quarterly total Year-on-year growth
Revenue 1,329 -2.4%
Operating profit 216 +14%
CAPEX 278 +6.3%

“From a business perspective, COVID-19 has had a limited impact on our operational KPIs and financial results in the first quarter,” said KPN CEO, Joost Farwerck. “We continued with the execution of our strategic plan and saw continued intense competition in the Dutch market, resulting in a lower customer base in Consumer.

“Mobile postpaid ARPU in consumer stayed at € 17 for the fifth consecutive quarter. In Business, we made again solid progress with customer migrations towards our KPN EEN portfolio; 82% of our SME and 62% of our LE customers migrated from traditional fixed voice or legacy broadband services.

“We continued to digitalize and simplify our organization, which led to strong cost savings in the quarter. In Wholesale, the announced assessments of regulated tariffs were discontinued by regulator ACM following the CBb court ruling on wholesale fixed access regulation

Nokia rolls with the COVID-19 punches in Q1 2020

Finnish kit vendor Nokia managed a solid set of numbers in the first quarter of this year, despite supply hassle created by that most disruptive of viruses.

Revenues were down a little bit, year-on-year, but they would have been slightly in the black if not for €200 million worth of supply disruption causes by that goddamn coronavirus. On the other hand the operating loss was significantly reduced from €524 million a year ago to €76 in the most recent quarter, indicating the cost reduction programme is going more or less according to plan.

“Nokia’s solid first quarter results showed broad year-on-year profitability improvements as our transformation and product cost reduction efforts started to take hold,” said CEO Rajeev Suri in his prepared commentary. “On a year-on-year basis, group-level non-IFRS operating margin was up by 3.6 percentage points; Networks gross margin increased by 3.5 percentage points; Nokia Software had an excellent quarter with sharp margin improvements and strong momentum with customers in North America; and, Nokia Enterprise delivered double-digit sales growth.

“These improvements are, of course, coming at a time of unprecedented change, given the impact of COVID-19. Our top focus areas are protecting our employees, maintaining critical network infrastructure for customers, and ensuring we have a strong cash position. In Q1, we saw a top line impact from COVID-19 issues of approximately €200 million, largely the result of supply issues associated with disruptions in China.

“We are adjusting the mid-points within our previously disclosed Outlook ranges for full-year 2020 to reflect the increased risks and uncertainty presented by the ongoing COVID-19 situation. We expect the majority of this COVID-19 impact to be in Q2 and believe that our industry is fairly resilient to the crisis, although not immune.

“We did not see a decline in demand in the first quarter. As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans. Pleasingly, despite the majority of our R&D employees working from home, we have not seen any impact on our roadmaps, and, in fact, some key software releases are proceeding ahead of schedule. Additionally, we saw a massive increase in network capacity demands.”

You can see selected slides from the Nokia presentation below. Note the 29% decline in Greater China sales, which seems to be offset by improved fortunes in the Middle East and Africa. Nokia seems to have been totally excluded from the Chinese market when it comes to the 5G RAN build-out, but its core and fixed line fortunes in the region remain unclear. Investors seemed happy enough with the numbers on the whole, with Nokia’s shares up 4% at time of writing.

Microsoft gets a bump-up in numbers thanks to COVID-19

The coronavirus outbreak is causing chaos in the financial markets, but with every crisis there are those who will benefit financially; Microsoft appears to be one.

The Redmond-based internet giant has reported its latest quarterly results, and it appears the lockdown is becoming a catalyst for profits. Total revenues increased 15% over the three-month period ending March 31, operating income was up 25% to $13 billion and net income jumped 22% to $10.8 billion.

With share price growing 4.5% in the final hours of trading, and a further 2.6% during the pre-market hours, Microsoft’s market capitalisation is more than $1.35 trillion, making it the most valuable corporation worldwide.

“We’ve seen two years’ worth of digital transformation in two months,” said Microsoft CEO Satya Nadella.

“From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.”

The coronavirus pandemic has forced families behind closed doors and employees to work from home. With lockdowns still in place in many of the worlds developed markets, new norms are bedding in and Microsoft is certainly one of those companies who will benefit.

Breakdown of Microsoft financial performance by business unit
Business unit Revenues Year-on-year
Productivity and Business Processes $11.7 billion 15%
Intelligent Cloud $12.3 billion 27%
More Personal Computing $11 billion 3%

Source: Microsoft Investor Relations

With more people working remotely, more businesses are being forced through a digital transformation process, and much more aggressively than most would have liked. To enable efficient work process, more cloud resources will have to be consumed by enterprise customers, though it is likely additional products will also be taken on in areas such as security.

For a company which has pivoted over the course of the last decade to position cloud front and centre of the business, current trends are incredibly beneficial.

For Microsoft, the revenues for the Azure cloud computing products surged 59% over the three months, while Teams now has more than 75 million daily active users, tripling over the last two months. 20 organizations with more than 100,000 employees are now using Teams, with new features being introduced each week. Live events for up to 100,000 attendees can now be streamed across the platform. Office 365 now has 258 million paid seats, while usage of Windows virtual desktop tripled this quarter.

But it is not just the enterprise-focused business units who are profiting.

Microsoft 365 Personal and Family now has more than 39 million subscribers, while Teams has been opened to consumer users for the first time. Windows 10 now has more than 1 billion monthly active devices, up 30% year-over-year, and Xbox has seen a boost also.

With children not being allowed to play outside in the garden and adults not allowed to play inside pubs, an obvious beneficiary was going to be the online entertainment segment. Netflix has already demonstrated financial gain with 27% uplift in revenues and a 22% boost in subscribers during its own earnings call, and Xbox has seen a similar lift.

Xbox Live currently has 19 million active users, while the Xbox Game Pass has more than 10 million subscribers. Although the team did not offer specifics when it came to the cloud gaming venture, Nadella said Project xCloud has “hundreds of thousands of users” in the beta stages in seven markets, with eight more launching over the next few weeks.

One question which does remain is whether this boost in revenues will be sustained?

“In our consumer business, we expect continued demand across Windows OEM, Surface and Gaming from the shift to remote work, play and learn from home,” said Microsoft CFO Amy Hood. “Our outlook assumes this benefit remains through much of Q4, though growth rates may be impacted as stay-at-home guidelines ease.

“In our commercial business, our strong position in durable growth markets means we expect consistent execution on a large annuity base, with continued usage and consumption growth across our cloud offerings.”

The risk of this benefit is that everything returns to the pre-COVID-19 way of life. Offices gradually become re-populated and the lessons from remote working are forgotten by traditional organisations. This would mean the bump in revenues would not be sustained by the cloud companies.

Although we suspect some traditional organisations might return to pre-COVID-19 working practises, many will adopt at least a portion of the newly transformed way of life. The extremity of the current bounty for the cloud companies will not be sustained, but there should be a shift in mentality over the long-term.

We tend to agree with the cloud companies that this enforced digital transformation programme will bed-in, though perhaps not as enthusiastically as the cloud companies believe. These are salespeople let’s not forget, selling the potential of Microsoft to investors. There will be sustained benefits, but some in society will be intolerant of evolution, so will returns to the ways of old.

Why is Google so interested in Fitbit?

In early November, Google announced it was acquiring Fitbit for $2.1 billion, a transaction which has polarised opinion. But why is Google interested in a faltering wearables brand?

Acquisitions in the technology world are not unsurprising, especially when it comes to search engine giant Google. This is a company which is constantly pushing the boundaries of normality, testing ideas outside its core competencies and exploring for the next multi-billion-dollar business.

The question which remains in the minds of some is whether Fitbit could be the catalyst for profits, or if this is an unjustified expansion of Google’s ability to pry into the personal lives of users around the world.

$2.1 billion for a failing wearables business

When talking about wearables, it used to be impossible to avoid Fitbit. This appeared to be one of the very few companies who could turn a profit in a segment which flattered to deceive. Until recently that is.

Looking at the financials of Fitbit, the business was heading south very quickly.

Full-year financial results for Fitbit 2015-19 (USD ($), millions)
Year Total revenue Net Income (Loss)
2019 1,434 (320)
2018 1,512 (185)
2017 1,615 (277)
2016 2,169 (102)
2015 1,858 175

Source: Fitbit Investor Relations

In 2015, Fitbit was a rapidly growing wearables brand turning a tidy profit. What made this even more impressive is the failures of almost everyone else to crack the market; wearables was a segment which no-one else seemed to be able to make work, not even Apple.

The trick with Fitbit was simplicity. It didn’t try to take on traditional timepieces with a clunky digital alternative which still had to be tethered to a smartphone, it produced a simple fitness device. It identified a need and fulfilled a purpose, without trying to be too clever.

The issue which it has faced in recent years is two-fold. Firstly, wearables become more mainstream and demanded more functionality. And secondly, mainstream brands were allocating big marketing budgets.

Fitbit attempted to evolve its offering, creating more devices which were more in-line with the smartwatch image of today, but it struggled to compete with the likes of Apple and Samsung when it came to functionality, design, marketing and acquiring new customers who had not previously been interested in wearables. It failed to evolve, adapt and expand.

That said, the barebones of a successful business are still there.

The resurgence of Fitbit as a competitive force

Fitbit is an interesting acquisition for Google. It has a solid and reputable fitness brand, a loyal customer base as well as existing products and IP. The fundamentals of a good business are in place, the reason Fitbit failed is it was not able to advance its business model to the next level of development.

Aside from good products, consumers nowadays are insisting on experiences and an ecosystem of supporting applications. One explanation as to why Fitbit is a failing business is that it was unable to develop the supporting applications, experiences and services to bundle behind the hardware.

This is where Google can help.

With the Fitbit team concentrating on developing new products, the software and services element can be delegated to the Google engineers. With an army of software experts and existing products, Fitbit could certainly emerge as a fighting force on the wearable scene once again.

Aside from the Android operating system which has Google has created for the wearable ecosystem, Wear OS, there are numerous other services which could be more closely linked to the Fitbit products such as Google Maps and YouTube Music. The products could also benefit from the work Google is doing into new areas such as the voice user interface and gesture control.

Bringing together the Fitbit hardware experience, IP and brand, with Google’s OS expertise and software engineering smarts is a very attractive mix.

Why would Google care about the wearable segment?

Firstly, Google is interested in any idea which can make money, and with the right care and attention, as well as patience, you can make money out of just about anything.

Secondly, the wearable ecosystem allows Google to operate in an area where it currently doesn’t.

And finally, wearable products allow it to buildout other investments in areas such as healthcare and smart cities.

Global smartphone market share – 2019
Brand Market share
Apple 31.7%
Xiaomi 12.4%
Samsung 9.2%
Huawei 8.3%
Fitbit 4.7%

Source: Statista

Just like the smart speaker products Google launched in recent years, the greater opportunity is not to profit from product sales, but to build a services ecosystem behind the hardware. Fitbit products with Wear OS allow Google to interact with customers in a new setting, in a new way, while collecting new data.

This data can of course be used to supplement existing advertising models, hyper-targeted messaging is where the money is after all, but it can also offer Google the opportunity to build new services. With a portfolio of fitness related products, Google can collect new data to create new applications as well as buildout the development of existing ideas.

For example, Verily is a research organization devoted to the study of life sciences. Verily works with academia, hospitals and health systems and life sciences companies to improve healthcare. The work is of course technology focused, making best use of data to augment the healthcare industry, and the addition of a portfolio of health and fitness wearable products would improve this proposition.

Another example is Sidewalk Labs, an ‘urban innovation’ investment from Google. The concept of smart cities is quickly gathering steam, and should the right investments be made, software companies could make billions. Wearable devices will be an important element of the smart cities for identification and authentication with public services, payments and interaction with other applications which could emerge.

These are two ideas which already exist in the Alphabet family, but Google does not currently have a venture into fitness and lifestyle. Fitbit it an entry point.

Owning the OS is critical to owning the ecosystem

Google is one of the most successful companies in the world because it manages to position its products and brands in front of people. And perhaps the most important acquisition it made in its history was Android.

The operating system, founded in 2003 by Andy Rubin, ensured Google powered the majority of smartphones across the world. It is free for smartphone manufacturers to use, but this comes with conditions; certain applications have to be installed as default. Aside from these products being very good, accessibility is one of the reasons they are so popular.

Wear OS, the operating system for wearable devices, offers Google the same opportunity. If users are tied into the Wear OS ecosystem, Google can build services and monetize the audience.

However, success for Wear OS has been wayward to date.

Apple devices use WatchOS, Xiaomi have their own as well, Garmin has developed one internally, Tizen is a Linux-based primarily by Samsung, while Fitbit also had their own. No-one was really that interested in Google’s OS when they have proprietary software, as this would mean handing data and the controlling stake in the software ecosystem to Google.

Purchasing Fitbit offers Google the opportunity to get Wear OS into the wild, collecting data to improve its capabilities. Without the Fitbit acquisition, Wear OS would most likely have dwindled and died, but if the Fitbit brand can be reinvigorated, there is every chance Google could be very influential in this segment. Especially as Fitbit already have a health-orientated brand perception.

Data, data, data…

The Google business is built on data. The algorithm powering search engines only works well because it is constantly trained to improve accuracy of results. Google advertising is only successful because it is hyper-targeted. The Maps products constantly need to be fed data to ensure route-planning is most efficient, local businesses are listed and preferences are honed to the user.

Fitbit offers some extraordinary data, which would be very useful for companies like Google.

To make best use of fitness-based products and applications, additional information on the user is often needed. Weight, height, fitness and lifestyle objectives, eating habits are some examples which can be plugged into the application. These devices also track user location, how and when they exercise, heart rate, and sleep patterns. Analysing this information is very useful for fitness-orientated users, but it is also incredibly valuable to advertisers.

It is always worth pointing out that the more people making use of Wear OS, the more data Google is collecting to fuel the advertising machine. Thanks to Deepmind, Google’s AI powerhouse, all of Google’s service make use of user insight to improve the accuracy and profitability.

This is where some of the objections to the Fitbit acquisition have been directed.

How much is too much insight?

There are many in society who are uncomfortable with the amount of information the internet giants, not Google alone, have already and how much additional access they are gaining through acquisitions. There are some who like the idea of Google purchasing Fitbit, but there are also others who question whether this is handing too much power and influence to the search giant.

Some might question how much of a window Google should be given into the personal lives of people around the world.

“The most critical issue is Google’s acquisition of Fitbit’s trove of health and biometric data,” the Electronic Frontier Foundation, an opponent of the acquisition, said. “Obtaining that data will help Google both improve its advertising business and significantly expand its data empire.

“Google’s acquisition of Fitbit will also deprive users of one simple, meaningful choice they could have made: to track their health and fitness without putting that data into Google’s ecosystem.

“And where users have already made this choice—by buying and using Fitbit devices prior to the acquisition—an acquisition destroys those user choices, retrospectively opting them into Google data collection despite their revealed preference to use a Google competitor.”

The Electronic Frontier Foundation has two objections to Google’s acquisition of Fitbit. Firstly, Google is getting too much personal information. A single, private organisation should not have such power. And secondly, such an acquisition would restrict competition in an already restrictive segment.

On the competition side of things, there is a valid point.

Not only is the smartwatch and wearable segment pretty small already, competition is the digital advertising space is also limited. Should Google expand further it would become more powerful in the advertising game, potentially killing off rivals.

The Electronic Frontier Foundation is not alone with its objections to the deal, and the concerns are not going unheard.

In the US, the Department of Justice is considering the impact of the acquisition in terms of data collection and privacy as well as market competition. Down in Australia, the Australian Competition and Consumer Commission (ACCC) has launched a similar investigation which is due to conclude on May 21.

The big question of whether Google should be allowed to acquire Fitbit

By acquiring Fitbit, Google gives itself a leapfrog in the wearable OS segment, it builds out investments in healthcare and smart cities, creates additional revenue streams, allows it to drive forward another ecosystem in its own vision and adds more valuable data into the advertising machine.

For Google, this is an incredibly intelligent acquisition, $2.1 billion well spent.

However, if it is to be successful it has to develop this business intelligently. The Wear OS team should focus on the development of the operating system and supporting ecosystem, while the Fitbit engineers should be empowered to create excellent devices, whether they are simplistic fitness trackers or complex smartwatches.

Enough money has to be thrown at the development teams, but Google has to let Fitbit be Fitbit; it is a successful brand and must be allowed to continue its own path. Let Google engineers concentrate on software, and Fitbit engineers concentrate on hardware.

But the question is not whether Google is smart in acquiring Fitbit, more whether it should be allowed to. The acquisition would enable Google access to a treasure trove of very personal information, as well as posing a potential risk to competition. The internet giants have already demonstrated a sluggish attitude to data privacy, and this transaction offers access to some very personal information.

Authorities will have to assess whether Fitbit would have survived on its own, which looking at the financials is unlikely, and whether Google should be allowed to expand its influence and power through the acquisition of more data.

Facebook poaches Ofcom gamekeeper

Regulation is coming and Facebook knows it, so it has reportedly persuaded Ofcom’s Director of Content Standards, Licensing and Enforcement to join the team.

The news comes courtesy of the Times, which reports that Tony Close resigned last week and was placed in gardening leave as soon as it became clear where he was headed. Close had been at Ofcom since 2003 and was most recently one of the people heading up Ofcom’s regulatory strategy with regard to social media, a role that became a lot more interesting when it was given new censorship powers earlier this year.

Neither Ofcom nor Facebook seem to have confirmed the move and we hadn’t received a response to our enquiry to Ofcom at time of writing. However there’s no sign of Close on Ofcom’s content board page, which seems to confirm he’s legged it. Facebook seems to have a taste for UK establishment figures, having nabbed for Deputy PM Nick Clegg to head up its government relations in 2018.

Close continues the rich tradition of public servants taking lucrative positions late in their career in the private sector to help navigate their former beat. He will be able to fill Facebook in on the latest thinking when it comes to regulating social media companies, something Facebook insists it welcomes, but presumably also wants to ensure doesn’t get in the way of business.

The regulation of big social media will be a defining issue of the next few years. They are supposed to be neutral platforms that allow public discussion without any editorial involvement of their own. Increasingly, however, pressure from advertisers, politicians and regulators has compelled them to take an active role in censoring their platforms to ensure the ‘wrong’ kinds of content don’t appear on them.

That kind of activity is associated with publishers, not platforms, but the likes of Facebook, Twitter and YouTube still don’t produce their own content. That, along with the practical impossibility of editing every single piece of content before it’s published, means social media companies can’t be classified as publishers for the purposes of regulation.

So it seems clear that a new category needs to be created for services that facilitate publication but don’t produce their own content. Regulators would then need to create a unique set of rules and obligations for that category to abide by, such as parameters of acceptable speech, as well as a proper structure to protect the interests of those who publish on those platforms.

It’s very hard to see where the best place to draw those lines is. This publication would prefer minimal censorship combined with robust public challenges to contentious content, but we’re apparently in a minority. Mainstream sentiment seems to err towards a more censorious approach to ‘preventing harm’ and it will be the job of regulators like Ofcom to define that. Facebook has quite sensibly used some of its abundant funds to get a greater insight into what form that definition may take.

Huawei reportedly partners with European chipmaker

It looks like Huawei is seeking to diversify its supply chains beyond US influence by partnering with Franco-Italian STMicroelectronics.

The report comes from Nikkei Asian Review, but we’re too tight to subscribe, so we can only bring you the top-line claim. Reading between the lines, if the report is accurate, this would appear to indicate a move by Huawei to redirect its supply chain away from US companies. It seems like a matter of time before the US government bans all its companies from doing business with Huawei.

One strong indicator that the story has substance is the fact that it was re-reported by Chinese paper the Global Times. While it isn’t the official mouthpiece of the Chinese Communist Party, it didn’t get where it is today by rubbing the CCP up the wrong way, so it seems safe to assume the report has the official seal of approval.

The Global Times report quotes a Chinese analyst as saying what a great move this is for all concerned and that it also indicates a strategic move into the automotive sector by Huawei. ST is a supplier to US car company Tesla, so it will be interesting to see if the US tries to push its luck by extending sanctions to anyone who even works with US companies. The European Union might have something to say about that.

Diversification helps Google ride the waves of coronavirus turbulence

Alphabet-owned Google certainly felt the pinch of COVID-19 over the last few weeks of the quarter, but CEO Sundar Pichai identified diversification as key to managing the crisis.

While few would complain when looking at the Google spreadsheets over the last three-months, it might not be living up to the milestones it has set itself in previous years. 13% year-on-year growth could be considered miserly in Google’s standards, but the coronavirus pandemic is a crisis few have experience with.

That said, investors are clearly pleased with the was Pichai and the team are managing the difficulties as share price shot up 8% during pre-market trading.

Google Q1 Financial Results (USD ($), millions)
Metric 2020 Year-on-year
Total revenues 41,159 +13%
Operating income 7,977 +20%
Net income 6,836 +3%

These are all attractive numbers, though coronavirus has inflicted a dent into the business. Pichai highlighted online advertising demand, the core revenue machine of the Alphabet group, was severely weakened from March onwards, as the full-impact of COVID-19 forced society and the economy to close doors.

Performance of individual business units (USD ($), millions)
Business Unit 2020 Year-on-year
Google Search 24,502 +8%
YouTube 4,038 +33%
Network Members’ properties 5,223 +4%
Google Cloud 2,777 +52%
Other Bets 135 -21%
Google other 4,435 +22%

In today’s world, where there is still plenty of unrealised profits in the digital economy, making money does not seem to be good enough. Investors demand high-growth year-on-year, partly due to what is available and partly because they have become used to it. This is the challenge which the likes of Google, Amazon and Facebook are facing; matching the success of yesteryear.

But in this period of uncertainty, it does appear to be a case of damage limitation. Like the financial crisis of 2008, everyone will be impacted but Google has somewhat of an advantage.

“…our business is more diversified than it was in 2008,” Pichai said during the earnings call. “For example, Cloud. In the public sector, we are helping governments delivered critical health and social services. We are supporting the state of New York, new online unemployment application system as it deals with a significant increase in demand.

“In retail, we have held Loblaw, one of Canada’s largest food retailers, and Wayfair, scale to support exponential traffic increases. We are helping communication companies adapt to new behaviour patterns. Vodafone is using Google Cloud platform to help that analyse network traffic flows to keep everyone connected, and we are helping Unity Technologies keep real time online games stay up and running.”

Google Cloud is the business unit which is perhaps profiting the most from the current crisis as more companies are forced through a digital transformation programme to embrace cloud solutions and enable workforce mobility. Some might complain about Google sinking billions into the Moonshot Labs every year, but this is the very reason why.

The more diversified revenues are, the more resilient a business is when faced with turmoil, irrelevant as to whether it is precedented or unprecedented. Google now has online advertising, cloud and video as three major sources, with plenty more bubbling away.

Over the three-month period, Alphabet CFO Ruth Porter said revenues for the Other Bets unit were $135 million, while operating loss was $1.1 billion. This might seem like a remarkable number, but these losses could eventually turn into the next Moonshot Graduate to make billions for the Group. Let’s not forget, the cloud business unit, YouTube, Maps and Android were all cultivated in these labs.

Currently in the experimental unit is Google’s self-driving car project Waymo, a delivery service using specialized drones known as Wing, life science tech unit Verily, smart city initiative Sidewalk Labs and Makani, an attempt to create renewable energy from propellers on airborne kites. Outside of these homegrown experiments, Google purchased Fitbit for $2.1 billion last year, taking it into the world of wearables.

Each quarter, the core advertising business unit brings in billions in profit, but dependence on these revenues are lessened. As the alternative revenue streams gather momentum, Google becomes more diversified and much more capable of managing global crisis’ which could cripple rival firms.

Chinese smartphone sales plummet

The latest numbers from Counterpoint Research reveal Q1 2020 smartphone sales in China plunged by 22%.

Somehow Huawei managed to buck that trend, however, as it continues to go from strength to strength in its home market. The table below reveals all of Huawei’s Android competitors experienced annual sales declines of between 27% and 40%, yet Huawei miraculously increased its smartphones sales by 6%. Looks like all that R&D spend is really paying off! Meanwhile Apple held firm as rich people continued to be rich.

“The drastic fall in Q1 China market was primarily dragged down by the dismal sales of smartphones in February (-35% YoY), when the country was severely impacted by the COVID-19 pandemic and commerce activities were minimal,” said Flora Tang of Counterpoint. “However, during the lockdown period in China, local e-Commerce giants such as Alibaba and JD.com managed to sustain efficient business operations and delivery services in major Chinese cities outside of Hubei province.

“For the strong support from these e-Commerce players, China’s smartphone sales appeared less negative than our original expectation.  We also estimate that the online share of smartphone sales in China surged to over 50% during Q1, from about 30% in 2019, though the share is likely to drop in Q2 after the pandemic is largely contained.”

“iPhone 11 was the best-selling smartphone model in Q1; it has topped China’s best-selling models list for 7 consecutive months,” said Ethan Qi of Counterpoint. “Consumers continued to purchase iPhones from e-commerce platforms despite the shutdown of Apple stores across China during February. As for the Huawei group, it continued to lead and gained share with a complete product portfolio covering the entry-level to premium segments. Huawei Mate 30 5G, Mate 30 Pro 5G, Huawei Nova 6 5G, and HONOR 9X were all among the top-selling models list during the quarter.”

On reason for Huawei’s exceptional performance could be its early entry into the 5G market. According to Counterpoint that market alone grew by 120%, compared to Q4 2019. “The dominance of Huawei in China’s 5G smartphone market was more evident— it contributed to over half of the total 5G phone sales in Q1, followed by Vivo, OPPO, and Xiaomi,” said Mengmeng Zheng of Counterpoint.

“By Q1 2020, various vendors had launched the sub-US$400 5G smartphones in China, such as Vivo Z6 5G, Xiaomi K30 5G, realme X50 5G, and ZTE AXON 11 5G. For the aggressiveness of Chinese OEMs to grow the penetration of 5G phones to lower-tier price bands, we expect 5G smartphones to rise to account for over 40% of total smartphone sales in China by the end of 2020.”

Despite that, Huawei was still in second place globally in terms of Q1 5G phone sales, according to Strategy Analytics. “Samsung vaulted into the lead in Q1 2020, shipping 8.3 million 5G smartphones globally in Q1 2020,” said Ville-Petteri Ukonaho of SA. “Samsung has strong global distribution networks and operator partnerships and new 5G smartphones in Q1 2020. Nearly all of Huawei’s 5G smartphones were shipped in China.”

“Chinese smartphone vendors captured 61 percent of top 5 vendor 5G smartphone shipment volumes in Q1 2020, with the majority of those volumes going to the Chinese market,” said Neil Mawston of SA. “This reflects the speed with which Chinese operators have rolled out 5G networks, as well as the underlying demand for 5G smartphones, despite the Covid-19 pandemic that shut down large parts of China during the Q1 2020 period. As China continues to ramp up economic activity, we expect 5G shipments to this market to continue to expand dramatically in 2020.”

Here’s the SA Q1 table. They might want to have a rethink about that moody bold font.