Lenovo earnings reveal the damage COVID-19 can inflict

With its main smartphone manufacturing sites situated in Wuhan, Lenovo has been hit hard by COVID-19, spoiling what would have otherwise been a very productive year.

Group revenues for Lenovo were down 1% to $50.7 billion, though it should be noted that revenues were down 10% year-on-year for the final three months, the period impacted by COVID-19. Across the first three quarters of 2019/20, the business was on the up as you can see below.

Financial performance of Lenovo 2019/20 (US Dollar ($), thousands)
Period Revenue Year-on-year Profit Year-on-year
Q4 10,579 (10%) 1,861 (2%)
Q3 14,103 0.5% 2,265 10.5%
Q2 13,522 1% 2,183 22%
Q1 12,512 5% 2,048 26%

Source: Lenovo Investor Relations

With the negatives of the final three months, growth figures were less than attractive, but without the impact of COVID-19 it has been a successful 12-month period.

“Amid one of the most significant periods of global change and transformation we have ever seen, Lenovo significantly transformed its business over the past year,” said Yang Yuanqing, Lenovo CEO.

“I am also unbelievably proud of how we continue to respond to the global pandemic, as both a business and a corporate citizen. While the world continues to face uncertain times, I’m confident Lenovo will leverage its operational excellence and global footprint to continue implementing our intelligent transformation strategy and fully grasp the opportunities our ‘new norm’ provides us.”

Many companies have complained about supply chain issues and disruption to manufacturing operations during this period, but few faced the same complications as Lenovo.

2019/20 had been targeted as a breakthrough year for Lenovo in the mobile segment. During the third quarter results, Lenovo’s mobile business unit boasted of five consecutive period of profitability growth, as well as outperforming the LATAM market on smartphone shipments by 19 points. LATAM is an area Lenovo, through the Motorola brand, has been very successful.

The final quarter put an end to this successful streak as Wuhan, the starting point of the COVID-19 pandemic, is home to Lenovo’s smartphone manufacturing facilities. This was the most heavily impacted segment of the Lenovo business, however its data centre business also declined on softer demand, however PC’s outperformed the market, IOT grew significantly and smart infrastructure grew 37% year-on-year as Network Function Virtualization started to generate revenue.


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Vodafone bucks the trend to grow revenues and hold onto dividends

Growing revenues and profits while maintaining the dividend are three things which are not supposed to happen together amid COVID-19, but Vodafone has done it.

With Group revenues totalling €44.9 billion for the full-year to March 31, a 3% year-on-year increase, and profits swinging from a 2019 loss of €951 million to a 2020 gain of just over €4 billion, Vodafone has something to boast about. This of course does not reflect the full impact of the COVID-19 pandemic, but it does demonstrate the telco is navigating the turbulent times effectively.

“Vodafone has delivered a good financial performance – growing revenue, adjusted EBITDA and free cash flow – whilst building strong commercial momentum through the year and executing at pace on our strategic priorities,” said Group CEO Nick Read.

“We have also continued to invest in our fixed and mobile Gigabit network infrastructure and digital services, to provide faster speeds for our customers, as well as successfully managing the recent surges in demand. The services Vodafone provides are more important than ever and we are committed to playing a key role in society’s recovery to the new normal.”

Latest three-month performance of European telcos (Euro (€), millions)
Telco Total revenue Year-on-year Profit Year-on-year Dividend?
Vodafone 11,285 0.8% 45 2.6% Yes
Orange 10,394 1% 2,602 0.5% No
BT 6,419 (4%) 2,287 (1%) No
Telefonica 11,366 (5.1%) 3,760 (11.8%) Yes
Telia 2,110 (2.2%)* 684 (5.1%) Yes

*Like-for-lie comparison, excluding acquisitions

While Vodafone does look like one of the more solid telcos during this period of societal lockdown, reduced spending power might have an impact in the mid- to long-term.

“Vodafone’s relative resilience to the lock-down has provided short term relief, but most investors eyes are now focused on which stocks will perform best as the world progressively moves out of lock-down and life returns to a new normal,” said Dan Ridsdale, Global Head of TMT for Edison Investment Research.

“Vodafone’s stable revenue profile means that any impact is unlikely to be significant either way, but on balance, the longer-term impacts of reduced spending power and mobility are likely to be headwinds.”

Although Group revenues dipped below what was expected by analysts for the period (€45.4 billion), it does appear the markets are sympathetic to circumstance. In the hours following the release of the financial data, Vodafone share price increased almost 8% (10am, May 12).

European performance by market – full year
Market Total revenue Year-on-year
Germany 12,076 16.2%
Italy 5,529 (5.6%)
UK 6,484 3.3%
Spain 4,296 (7.9%)
Ireland 838 (1%)
Portugal 985 5.5%
Romania 734 16.8%
Greece 884 2.7%

Aside from a few markets where competition has been rocked by disruptive market entrants, the European business is holding steady. India is proving to be a significant issue, so much so it is becoming increasingly clear the team is attempting to cut their losses, though the group is in a relatively solid position.

Moving forward, the team is more readily embracing the convergence trends which are sweeping through the telecoms industry. The business can now claim 25 million broadband customers across the region, a number which will most likely grow as the acquisition of Liberty Global assets in Germany and Eastern Europe start to pay off.

Thanks to a mobile subscriber base of 64.4 million customers across Europe, Vodafone is in a position to ride out the turbulent COVID-19 crisis relatively unscathed, but it will be difficult to make any significant progress during this period.

5G has been launched in 97 cities, but with societies under lockdown taking this forward will be difficult. The UK business has claimed 751,000 broadband customers, but consumer appetite to switch is very low currently. The subscription-based television distribution business has over 22 million active customer subscriptions, but Netflix and Disney+ are the ones profiting from societal inactivity.

The framework is there for a convergence business model in some markets, though Vodafone is having to compromise by utilising third-party broadband infrastructure in others. There are certainly some interesting developments on hold here, but most will hope the period of enforced inactivity does not dampen the prospects of the business to much.

T-Mobile bags 452k subs as 5G starts to roll

An additional 452,000 branded postpaid subscriptions and churn of 0.86% should be enough to put a smile on the face of T-Mobile investors as share price soars 9%.

The majority of telcos might be scrapping and scraping against wider industry trends, but T-Mobile investors will be very pleased with how the business is progressing. Not only has the long-awaited merger with Sprint been formally approved, the financial spreadsheets are also proving to be a success.

“Just five weeks ago, we merged with Sprint to create the New T-Mobile, and we’re more excited today than ever before about the massive value creation opportunity and synergy potential that lies ahead,” said CEO Mike Sievert.

“We are off to the races laying the foundation for the future of the New T-Mobile as we work to execute on our business plan and harness the incredible opportunity ahead.”

T-Mobile financial results for period ending March 31 (USD ($), millions)
Total Year-on-year
Revenues 11,113 0.3%
Service revenues 8,713 5.3%
Net income 951 4.7%
Free cash 732 18.4%

Source: T-Mobile US Investor Relations

And while these are encouraging figures, the real fun is about to being. Sievert has the pleasure of integrating T-Mobile’s operations with Sprint’s.

Having been formally kicked-off on April 1, the two organisations will become one. This means scaled deployments, rationalising the retail footprint and pushing forward with 5G. The latter is perhaps the most interesting element, and the one which will give the best opportunity to close the gap on AT&T and Verizon.

In terms of a 5G offering, T-Mobile now looks to have the most complete proposition. It has access to mmWave spectrum for high-speed downloads, 600 MHz bands for coverage and, thanks to the Sprint merger, 2.5 GHz mid-band spectrum to blend together speed and coverage. This is a 5G assault which ticks all the boxes which is currently in play in Philadelphia with New York next on the roadmap.

T-Mobile still lags behind AT&T and Verizon, but a carefully crafted and aggressive drive towards 5G could shift market dynamics very quickly.

Subscribers for US mobile network operators
Total subscribers 5G subscribers***
AT&T 176,510232 14,416,872
Verizon 182,554,002 16,560,150
T-Mobile and Sprint 114,359,944 18,560,447

*** Forecast by Omdia over the next twelve months

Streaming venture leads Disney to 29% revenue surge

The Walt Disney company has reported a 29% increase for year-on-year revenues thanks to its streaming bet, but COVID-19 has forced the team to withhold dividend payments.

The impact of the coronavirus pandemic is clear over the last three months, as Disney has been forced to close all theme parks and the majority of retail stores, while there have also been supply chain disruptions. The launch of Disney+ has offset much of the negative, while the suspension of dividend payments should save the company somewhere in the region of $1.6 billion in cash. This saving will become very useful as the team continues international launches for the streaming venture.

“While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position,” said CEO Bob Chapek.

“Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.”

Walt Disney revenues for Q2 2020 and H1 2020 (USD ($), millions)
Three months to March 28 Year-on-year Six months to March 28 Year-on-year
Revenues 18,009 21% 38,867 29%
Net income 475 (91%) 2,608 (68%)
Free cash 1,910 (30%) 2,202 (39%)

Source: Walt Disney Company Investor Relations

Looking across the business, Disney has been impacted quite severely by the coronavirus outbreak:

  • Cinemas are closed impacting theatrical release and delay to home entertainment revenue
  • Production for new content has been halted
  • Advertising for broadcast TV has been dampened, impacting ESPN and Hulu
  • Parks, hotels, experiences and retail footprint are closed
  • Construction and maintenance is on-hold
  • Benefits and synergies of $71 billion Twenty-First Century Fox acquisition delayed

There does seem to be light at the end of the tunnel for the parks and retail business unit with business returning to normal in China. The Disneytown shopping and entertainment complex has been reopened, while Shanghai Disneyland is scheduled to reopen next week. The team will hope these timelines are replicated around the rest of the world.

There will of course be negative consequences for every business during this unique period, however, Disney does of course have positives to point to. Most notably, the launch and expansion of its streaming platform, Disney+, and new content which has been released on other content platforms.

ESPN has seen viewing figures increase by 11% year-on-year, thanks to the release of Michael Jordan and the Chicago Bulls docuseries, The Last Dance, and the NFL draft, which took place virtually. But it is Disney+ which steals the headlines here.

Over the first five months, Disney+ has bagged 54.5 million subscriptions, vastly exceeding expectations, while there are still lucrative launches in Japan, the Nordics and Benelux over the next few months. The team is not providing much insight on when it plans to break into profitability, but adoption trends around the world are very encouraging to date.

Performance of Walt Disney media assets to March 28
Subscribers (million) Year-on-year Monthly ARPU ($) Year-on-year
Disney+ 33.5* 5.63
ESPN+ 7.9 359% 4.24 (17%)
Hulu (SVOD) 28.8 24% 12.06 (5%)
Hulu (Live and SVOD) 3.3 65% 67.75 29%

*Does not include April subscriber acquisition

This is a major growth asset for the business, especially under the current circumstances. Interestingly enough, there might be an opportunity to offset losses, by releasing certain titles directly on the streaming platform, cutting out theatrical release.

“As you know, we had seven $1 billion films in calendar year ’19,” said CEO Chapek. “But we also realize that either because of changing and evolving consumer dynamics or because of certain situations like COVID, we may have to make some changes to that overall strategy just because theatres aren’t open or aren’t open to the extent that anybody needs to be financially viable.

“So we’re going to evaluate each one of our movies on a case-by-case situation as we are doing right now during this coronavirus situation.”

Releasing in theatres is a big financial draw for Disney, but it also comes with a significant financial outlay. Marketing dollars will still have to be attributed to launches on the streaming platforms, but with content consumption trends shifting more to on-demand, in the living room and the real world, it might make more sense to skip the cinema for some titles.

NBCUniversal has already started releasing some titles on streaming platforms for an additional premium. It has been stated this is due to COVID-19, but it might not be a temporary trend for all titles. Not only is it likely to be cheaper, it satisfies consumer demand and makes the streaming platforms more attractive to subscribe to.

The content business unit is holding the Disney empire up as all the other pillars crumble in the background. Disney is not a company which will ditch its physical business, but success attracts dollars. Chapek has said he remains ‘bullish’ on international expansion of Hulu, while Disney+ is looking like a rip-roaring success. The Walt Disney Company could look like a very different organisation in a few years.

If there was a good time for COVID-19 to impact Apple, it is now

Hardware sales for Apple have dipped over the last three months, but with services gaining weight and the firm still in the building stages for 5G, few seem to be worried.

Apple is in an interesting position currently. Thanks to the product roadmap, if there was a good time for sales to plunge due to extenuating circumstances, now is it.

While the team has recently announced the launch of a new device, the 2020 iPhone SE, this is only a taster of what is to come. The latter part of this year and the early part of 2021 is where the iGiant should make serious waves as it launches its own assault on the 5G era.

“Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables,” said Apple CEO Tim Cook. “In this difficult environment, our users are depending on Apple products in renewed ways to stay connected, informed, creative, and productive.”

Apple financial results for period ending March 31 (USD ($), millions)
  Total Year-on-year
Total revenues 58,313 +0.5%
Cost of sales 35,943 -0.7%
Net income 11,249 -2.7%

Source: Apple Investor Relations

Although iPhone sales have been hit by the pandemic, revenues are down by roughly 6.8%, as have Mac and iPad sales, decreasing 2.9% and 10.4% respectively, the wearables, home entertainment and services business units are on the up. The gains have compensated for the losses.

Apple released the figures following the close of financial markets, though share price was down by 3% in overnight trading.

Investors might not be thrilled by these figures, which were less than Wall Street expectations, there is perhaps evidence the diversification efforts of Apple are paying off.

Apple revenues split by product and service segments
Period iPhone Mac iPad Other Services
Q2 2020 49.6% 9.1% 7.5% 10.7% 22.9%
Q1 2020 60.9% 7.8% 6.5% 10.9% 13.8%
Q4 2019 52.1% 10.9% 7.2% 10.2% 19.5%
Q3 2019 48.3% 10.8% 9.3% 10.2% 19.2%
Q2 2019 53.4% 9.5% 8.4% 8.8% 19.7%
Q1 2019 61.6% 8.8% 7.9% 8.7% 12.9%

*Other = Wearables, Home and Accessories

With iPhone sales in particular being hit hard by the coronavirus pandemic, diversification efforts from Apple put the company in a promising position. Wearables, home entertainment and services in particular are making Apple seem like a much more well-rounded and sustainable business.

This is not a one-off either, diversification is key to navigating difficult periods. During this current crisis, Google and Microsoft are two companies who are performing admirably, another two example of organisations who have driven towards diversification from core competencies.

Perhaps the most important note to take away from this earnings call is that if Apple’s ability to make money was impacted by external influences, now is the best time for it to happen.

As with every other premium smartphone manufacturer, ambitions have been cast towards the up-coming 5G era, as well as the device refreshment cycle which is likely to accompany. 2020 was supposed to be the year of 5G, though perhaps the slowing of base station deployment has postponed this slightly.

Apple was never going to launch a 5G device in the first half of the year, it traditionally saves its flagship launch for the autumn, as consumers are preparing for Christmas purchases. There are of course reports that the launch of the Apple device in a few months will be delayed, but as long as it is before Christmas few executives will be worried. Interestingly enough, anticipation will also be extended to the telco industry.

The launch of the next Apple device could be a catalyst to launch 5G into the mainstream. Such is the power of Apple and its brand, 5G could be the new norm once the Cupertino-based tech giant makes a powerful statement. This could be a major influence in the migration of customers from 4G to 5G tariffs.

Apple is a very powerful company, and while sales have been impacted by COVID-19, its diversification efforts are compensating, and its major marketing activities are being reserved. As long as lockdowns have been eased by the end of the year, few Apple executives will be bothered by the financial impact of the coronavirus.

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

Samsung warns of worrying H2 as COVID-19 wobbles spreadsheets

Samsung has unveiled its quarterly figures for the three months ending March 31, which looked pretty positive, though there has been a dire warning for the rest of the year.

With the vast majority of the Samsung business reliant on consumer confidence, a prolonged outbreak would present problems for the team. Smartphone sales have been forecast a decline over the coming months, while the prospect of a recession would be a very worrying sign for the consumer electronics unit.

But looking at the most recent three months, executives highlighted trading was relatively positive until the beginning of March, where the coronavirus outbreak dented sales. Total revenues for the three-month period stood at 55.33 trillion Korean Won, an increase of 6% year-on-year.

Samsung quarterly revenues by business (Korean Won, Trillions)
Category Revenue Year-on-year Profit Year-on-year
Consumer Electronics 10.30 +1% 0.45 -12%
IT and Mobile Communications 26.00 -4% 2.65 +16%
Device Solutions 24.13 +17% 3.72 +5%

The only business unit which demonstrated a year-on-year decline for this period was IT and Mobile Communications, though executives seem positive about performance with a wider portfolio of smartphone products and a network infrastructure business unit which is starting to gather momentum.

Smartphone demand might have been expected to bounce back over the remainder of the year, though COVID-19 has limited opportunities, however there is certainly potential for the network infrastructure team.

Samsung might well be one of the biggest beneficiaries of US aggression towards China, as well as European desire to introduce greater variety in the supply chain. The Radio Access Network (RAN) segment of the telco ecosystem is incredibly streamlined already but removing (or limiting) the Chinese vendors presents opportunity for rivals. We’re not including OpenRAN for the moment as it is seemingly not deemed market ready, leaving Samsung as one of the few remaining options.

Although there might be delays in investment for 5G infrastructure over the short-term, for H2 there should be more opportunity. South Korea is a hot pocket of 5G activity as one of the leading nations for adoption, while a contract with KDDI in Japan, the three major MNOs in the US and ties to Telefonica in Europe gives Samsung momentum in the 5G RAN game.

Kim Young-ki, who leads Samsung’s networking business, believes a 20% market share for 5G RAN is possible, and while this represents a significant uplift from its 6% share of 4G RAN, it has started well. Anti-China rhetoric around the world and a European desire for supply chain diversity are two trends which certainly help the cause.

While this is a business unit which looks like it could make positive moves, it should also be noted that the vast majority of the Samsung business is going to face considerable pressure.

Smartphone demand will dampen with the high street closed, while the flagship 5G devices look less appealing as network deployment slows. The semiconductor and components business unit is reliant on consumer electronics demand, and while the memory products might be doing well due to increased PC and laptop demand, this is only a fragment of the overall equation. Consumer electronics, in particular high-end TVs, are facing a monumental headache, as the longer the coronavirus pandemic persists, the greater the likelihood of a recession.

Overall, the first quarter of 2020 was positive for Samsung and while there are some pockets of promise, the risks are far more weighty.

Current crisis acts as convenient distraction for wider NTT failings

Like many other businesses, NTT Docomo has pointed to COVID-19 for poor financial results, but this is a business which was struggling long before the coronavirus hit Japan.

In what should be considered a standard screen play from the PR handbook, NTT Docomo has offered much more detail on the 5G roadmap than any would have expected. Why, some might ask, perhaps as a distraction from the negative news which has been unveiled during the year-end financial results.

“As for the guidance for FY2020, given the difficulty of making reasonable estimates on our financial results due to the impact of COVID-19 outbreak, we decided not to make any disclosures at this juncture,” said CEO Kazuhiro Yoshizawa.

“After carefully assessing the impact on our financial performance, we will make a prompt announcement once it becomes possible to make reasonable estimates.”

NTT Docomo will not offer any guidance while the current crisis plagues society, while it has been a poor year from the Japanese telco. COVID-19 will of course explain some of the declines, but it would appear to be only one contributing element.

NTT Docomo full-year financial results to March 31 (USD ($), millions – approximate)
  Actual Year-on-year
Operating revenues 43,579 -3.9%
Operating expenses 35,570 -0.8%
Operating profit 8,007 -15.7%
Profit before tax 8,132 -13.4%
Profit 5,572 -10.5%

It might be easy to attribute the decline to COVID-19, but as you can see from the table below, revenues have been down year-on-year across all quarterly reports.

Breakdown of full-year financial results by quarter (USD ($), millions – approximate)
  Operating Revenues Year-on-year
Q1 2019 10,864 -1.5%
Q2 2019 10,971 -3.5%
Q3 2019 11,114 -6.3%
Q4 2019 10,638 -4.4%
FY 2019 43,579 -3.9%

For some businesses it is perfectly fair to largely ignore revenue declines in the most recent financial results, COVID-19 is a very unique crisis, though you have to place it into context. At NTT Docomo, the financial decline has been in place long before the impact of the coronavirus pandemic. It could be viewed as a convenient distraction for the wider failings across the business.

Of course, there is a direct link to COVID-19 also. International roaming is significantly down, migration from 4G to 5G has decelerated, while sales for data packages and ‘Smart Life’ solutions are lower due to shop closures. The coronavirus pandemic is causing problems, but the financial decline at NTT Docomo seems to be much more.

One issue for NTT Docomo seems to be eroding ARPU, as mobile subscriptions have been increasing, as well as some very heavy discounts and promotions across the year. Competition has intensified in Japan, which has been hitting revenues, though it might only get more detrimental for NTT Docomo as Rakuten enters the market with incredibly disruptive pricing plans. Looking at statement Rakuten has already made, tariffs look to be roughly half the price what is being offered by rivals.

Alongside the financial results, the telco has also offered greater insight into the 5G deployment plans over the next 12 months, as well as targets through to 2023. These projects will certainly keep the team busy.

After launching its 5G commercial services, NTT Docomo has said it has deployed 500 base stations to date, attracting 14,000 subscribers. Over the next 12 months, the team will continue this rollout (aiming to have 10,000 5G base stations by June 2021) while also concentrating on integrating OpenRAN solutions and mmWave spectrum.

By this point next year, NTT Docomo should have launched 5G commercial services in 500 locations including all government-designated cities, while it aims to have 2.5 million 5G subscribers. There are currently seven ‘5G services’ available, which will be increased across music, gaming, video and sports, while there are also 22 partnerships in place for the co-creation of new 5G solutions.

The 5G plan offers much more detail than many other operators have offered to date, though a sceptic might suggest this is a distraction technique to draw eyes away from financial failings.

TV takes a bite out of AT&T and Telia financials

The content business units of both the US’ AT&T and Nordics telco Telia as spreadsheets were strained during the on-going COVID-19 pandemic.

While it is becoming impossible not to mention the coronavirus outbreak at almost every turn, both the telcos have planned the crisis for the financial downturn. Although the top-line figures might show year-on-year declines, it is very difficult to hold anyone accountable as the world ponders this unforeseeable pandemic.

“The beginning of 2020 cannot be characterized as business as usual for Telia Company and society as a whole,” Telia CEO Christian Luiga said in the statement to investors. “Our financial performance is stable within our traditional telco business, with flat service revenues and an underlying growing adjusted EBITDA, whilst COVID-19 has had a negative impact on the TV & Media unit.”

“The COVID pandemic had a 5 cents per share impact on our first quarter. Without it, the quarter was about what we expected — strong wireless numbers that covered the HBO Max investment, and produced stable EBITDA and EBITDA margins,” said Randall Stephenson, AT&T and CEO.

In both of these businesses, the core business of telecommunications stood firm against testing trading conditions, but it was the content units which felt the strain. Most notably, the legacy TV services which both are attempting to shake off moving forward.

Looking at the AT&T financials, revenues fell short of analyst expectations though the coronavirus outbreak is causing chaos in the ranks. With revenues reaching $42.8 billion for the three-month period, down 4.6% year-on-year with $600 million attributed to the COVID-19 crisis. Roaming revenues were a contributing factor though the issue has been largely attributed to dampening demand for advertising.

Like many other businesses throughout the telecoms and technology world, AT&T has decided against giving any guidance for the rest of the year.

Over in Sweden with Telia, although net revenues did increase year-on-year, this is partly down to the acquisition of Bonnier Broadcasting. On a like-for-like basis, comparing what business units existed in Q1 2019, total revenues declined by 2.2%. Data usage has increased, as did wireless revenues, but it was the entertainment and TV unit which suffered.

Coronavirus has had a severe negative impact on the overall business, with demand from advertisers declining through the period. Traditional TV businesses are under considerable pressure during this crisis, quite the opposite of the fortunes being hoovered up by the streaming giants.

While it is interesting to keep an eye on the financials of the telcos during this period, it is very difficult to use these earning calls as a genuine temperature gauge.

Cellnex revenues surging as it announces new JV with Bouygues Telecom

Spanish tower operator Cellnex has continued down the path of aggressive expansion, launching a new joint venture with Bouygues Telecom and announcing 15% growth at its earnings call.

While infrastructure companies are not necessarily given the largest share of the limelight, Cellnex has been doing everything possible to grab headlines over the last few months. It spent €800 million to buy Portuguese tower company Omtel in January, bought Iliad’s tower assets in France and Italy in December, in October it acquired the Arqiva telco business unit in the UK for £2 billion and bought 2,239 towers in Switzerland from Sunrise during the summer.

Adding another joint venture to such a quick-fire spending spree might get some investors nervous, but these twitchy financiers might well be calmed by the earnings call. Year-on-year revenue growth of 15% and a backlog of contracted future sales which exceeds €44 billion would calm even some of the most worrisome spreadsheet warriors.

“Certainly 2019 has been a transformational year that marked a quantum leap in terms of size as well as a qualitative leap in consolidating the group’s position in its key markets, while further expanding our geographical footprint in Europe with the incorporation of two new countries –Ireland and Portugal—into our operations,” said Cellnex Franco Bernabè Chairman.

“Another prominent highlight is the trust that Cellnex’s shareholders place in our project, evidenced by their high degree of participation in and support for the two capital increases carried out in March and October.”

Total revenues for the year stood at €1.035 billion, a 15% year-on-year increase, which the aggressive acquisition strategy resulting in a total of 36,471 operative sites and a further 1,995 nodes across the network. These might sound like impressive numbers for the moment, though when you account for the agreed upon investments for the future, an additional 28,000 assets will be added to the portfolio across the eight European countries in which the company is present.

Looking at the joint venture with Bouygues Telecom, Cellnex will contribute €1 billion to fund a 31,500km fibre optic network in France to provide mobile backhaul and fixed connectivity services. Bouygues Telecom will act as the anchor-tenant of the network as a result of signing a 30+5-year contract worth €4 billion and will account for an estimated 80% of the joint ventures total revenues.

While Cellnex has been operating in France since 2016, the additional 5,000 rooftop and towers assets and fibre network as a result of this deal will certainly build on this presence. Thanks to this and previous deals with Bouygues Telecom, as well as the purchase of Iliad’s 5,700 sites, Cellnex will soon manage a portfolio of almost 14,000 sites in France, becoming the company’s single largest market.

For companies like Cellnex, this appears to be the perfect time to drive forward with expansion plans. The global telco industry is one which is generally cash-constrained, though there is plenty of pressure to aggressively deploy new infrastructure for both mobile and fixed networks. This is not a balanced equation, but the infrastructure companies are certainly in a position to benefit.

Firstly, thanks to the cash constraints of the telcos, there are opportunities for the likes of Cellnex to purchase assets at what some could consider bargain prices. The telcos need cash to fuel the 5G and fibre expansion, though it seems passive mobile infrastructure are assets deemed dispensable.

Secondly, once the telcos dispatch of these dispensable assets and scale back investments in new passive infrastructure, these become very attractive rental customers. Passive infrastructure is a long-term play for ROI, but the demand is hardly likely to subside in the future.

Arguably the telcos are being painted into an uncomfortable corner. These are companies which need cash, therefore disposal of non-critical assets is perhaps necessary. However, it will always be a more financially attractive position to own passive infrastructure than enter into lease agreements over extended periods of time.

This is the conundrum which the telcos are currently facing, maybe it could be considered a ‘short-term gain, long-term pain’ scenario, but Cellnex isn’t being shy in its attempt to capitalise on the situation.