T-Mobile US bags another million, while AT&T makes doubles down on 5G claims

It’s been a busy day on the US side of the pond as T-Mobile US reported its full-year subscription figures, while AT&T promised a nationwide 5G rollout with few details.

Starting with the controversial and confrontational T-Mobile, the magenta army claims to have added total net customer additions of 2.4 million to the ranks over the last three months, while 2018 on the whole stood at 7 million total net adds. In the final quarter, the numbers stood at 1.4 million branded postpaid net additions, 1 million of which were branded postpaid phone net additions, making it the best quarter in four years.

“The T-Mobile team delivered our best customer results ever in Q4 2018 and we did it in a competitive climate while working hard to complete our merger with Sprint,” said John Legere, CEO of T-Mobile. “That’s 23 quarters in a row where more than 1 million customers have chosen T-Mobile – along with a postpaid phone churn result that’s below 1%. These customer results speak volumes about our company, our network and our brand.”

There is no question T-Mobile US has been a success story under the leadership of Legere, but the big question is how he has done it. In short, Legere has not conformed to the status quo, as you can probably pick up from his ranting and raving on social media, but hyper-targeted marketing has also played a role.

This is a strategy which has been in the making for some time now, the team promised to address markets and demographics which are apparently underserved, or blurred together with generic marketing campaigns. It seems to be the incremental increase approach to growth, but you can’t argue with success.

“…it’s the strategy we laid out for you, going back to 2015 and 2016 is in full effect now,” said COO Mike Sievert on the earnings call. “We said we were going to expand distribution, we did that. We said we were going to expand the segments that we go after and we did that. We were going to add a very serious focus on business, we did that. So, the results have the benefit of all those things in the runway now.

“So that’s a phenomenal uptick. Our suburban market share, we think is 14% to 15%. Our rural market share, we think is sub-10%. Military and older people, 55 plus, sorry Braxton. We think we have a 10%-ish share of both those segments that we’ve been focusing on for a year right now. So, lots of runway behind the strategy left to go, but you are starting to see, as we promised you would the effects of those investments now flowing through into our results.”

One segment which is in currently in the crosshair is enterprise customers. The team might have had one of the most successful quarters to date in this area, according to Sievert, but market share is very low currently. AT&T and Verizon naturally hold the lion’s share of the business, but T-Mobile US has already shown it is perfectly capable of making a challenge to the ‘duopoly’.

Looking ahead to the 5G bonanza, the T-Mobile team has decided to sit out the initial race, or how this has been spun by the PR ‘gurus’, instead focusing on the long-term nationwide charge.

“We are the only ones that have a plan to bring 5G nationwide in 2020,” said Sievert. “And the others are focused on millimetre wave in some places. We are bringing 5G everywhere we operate, and we are doing it by next year and that’s a real differentiator.”

In the pursuit of coverage and due diligence, Sievert is not being factually correct here, making a statement which is indeed inaccurate.

Looking over at the AT&T business, the team has made its own statement, perhaps an effort to redirect attention from the misleading statements it has made concerning ‘5Ge’. This marketing ploy is of course nothing more than an attempt to pray on the un-informed, using small print to its greatest effect, though whether the latest statement is any better we’ll leave you to decide.

Similar to T-Mobile US’ commitment to 5G, AT&T has now promised ‘nationwide mobile 5G footprint’ using sub-6 GHz spectrum by early 2020. The ambitions are certainly noteworthy from both parties, but what we are struggling to stomach at the moment are a lack of details; no-one has actually stepped forward to say what a nationwide rollout actually means.

Does this mean there will be a 5G footprint in every state? What percentage of the US will be covered by 5G? Will the rural communities have a taste of the new connectivity euphoria or will it simply be limited to the busiest sections of the largest cities? What transportation hubs will become a 5G hotspot? How many 5G cell sites are forecast for the time when nationwide 5G coverage will be claimed?

While we are being particularly critical of the claims, we believe this is necessary for an industry which is not always the most honest with its customers.

Although consumers should remain apathetic, though they probably won’t, to the 5G euphoria, or at least until there are 5G-specific services launched, the new networks will become a major marketing plug for the telcos. The marketing team need something new to talk about, and the ‘bigger, better, faster’ tendencies of these departments will ensure 5G is front-page news.

All of the 5G buzz means very little to the consumer right now, but don’t tell them that. However, on a more positive note, it is quite exciting at how quickly the 5G promise is becoming a reality.

Samsung warns sales and profits are going down the toilet

Korean giant Samsung has become the latest major tech company to warn about significant under-performance towards the end of 2018.

In its earnings guidance for Q4 18 Samsung Electronics advised that it expects sales of around 59 trillion Korean won and 10.8 trillion Korean won. In the same quarter a year ago it racked up sales of 66 trillion and profits of 15 trillion, so that’s a pretty major drop-off, especially for profit, with margin dropping from 23% to 18%.

Analysts expected a bit of a drop in profit, according to Bloomberg, but only as low at 13.8 trillion. The same story points the finger at the trade aggro between the US and China as a major reason for the drop off, citing reduced demand for memory chips which are a big thing for Samsung.

Among the companies presumably buying less chips is Apple, which also issued a sales warning last week, thanks largely to smartphone demand dropping off a cliff in China. Samsung has blamed its woes on ‘mounting macro uncertainties’ affecting chip sales and good old ‘intensifying competition’ in the smartphone market.

The latter claim seems somewhat implausible in the light of Apple’s recent admission. What seems more likely is that the downward trend in smartphone demand has accelerated, compounded by the fact that neither of Apple or Samsung’s latest flagship models offered much to entice people to upgrade. Two-year-old smartphones still do a decent job so upgrade cycles are extending, which means lower sales for the foreseeable future.

The cloud is booming but no-one seems to have told Oracle

Revenues in the cloud computing world are growing fast with no end in sight just yet, but Oracle can’t seem to cash in on the bonanza.

This week brought joint-CEOs Safra Catz and Mark Hurd in front of analysts and investors to tell everyone nothing has really changed. Every cloud business seems to be hoovering up the fortunes brought with the digital era, demonstrating strong year-on-year growth, but Oracle only managed to bag a 2% increase, 1% for the cloud business units.

It doesn’t matter how you phrase it, what creative accounting processes you use, when you fix the currency exchange, Oracle is missing out on the cash grab.

Total Revenues were unchanged at $9.6 billion and up 2% in constant currency compared to the same three months of 2017, Cloud Services and License Support plus Cloud License and On-Premise License revenues were up 1% to $7.9 billion. Cloud Services and License Support revenues were $6.6 billion, while Cloud License and On-Premise License revenues were $1.2 billion. Cloud now accounts for nearly 70% of the total company revenues and most of it is recurring revenues.

Some might point to the evident growth. More money than last year is of course better, but you have to compare the fortunes of Oracle to those who are also trying to capture the cash.

First, let’s look at the cloud market on the whole. Microsoft commercial cloud services have an annual run rate of $21.2 billion, AWS stands at $20.4 billion, IBM $10.3 billion, Google cloud platform at $4 billion and Alibaba at $2.2 billion. Oracle’s annual run rate is larger than Google and Alibaba, those these two businesses are growing very quickly.

Using the Right Scale State of the Cloud report, enterprises running Google public cloud applications are now 19%, IBM’s applications are 15%, Microsoft at 58% and AWS at 68%. Alibaba is very low, though considering the scale potential it has in China, there is great opportunity for a catapult into the international markets. Oracle’s applications are only running in 10% of enterprise organizations who responded to the research.

Looking at the market share gains for last quarter, AWS is unsurprisingly sitting at the top of the pile collecting 34% over the last three months, Microsoft was in second with around 15%, while Google, IBM and Alibaba exceeded the rest of the market as well. Oracle sits in the group of ten providers which collectively accounted for 15% of cloud spending in the last quarter. These numbers shouldn’t be viewed as the most attractive.

Oracle is not a company which is going to disappear from the technology landscape, it is too important a service provider to numerous businesses around the world. However, a once dominant and influential brand is losing its position. Oracle didn’t react quick enough to the cloud euphoria and it’s looking like its being punished for it now.

TalkTalk launches subsidiary devoted to fibre roll out

UK ISP TalkTalk is so devoted to rolling out fibre that it has launched a new company – FibreNation – devoted entirely to that.

Apart from the statement of intent this move is noteworthy in so much as it signifies a new, serious competitor to Openreach and Virgin Media in the areas it will operate. It seems to be initially focusing on Yorkshire, but intends to eventually connect three million homes and businesses to ‘full fibre’.

The company will operate as an Openreach-style wholesaler and has apparently already signed up Sky as a customer, which must be delighted to have an alternative to Openreach for its wholesale fixed line needs. The other initial customer, of course, will be TalkTalk itself.

“We’re delighted to launch FibreNation and set out our plan to deliver world class broadband to three million homes and businesses,” said Tristia Harrison, Chief Executive of TalkTalk. “For too long, Britain has trailed the rest of the world when it comes to broadband speed and reliability. We’re determined to change that and invest in the faster, more reliable broadband Britain deserves. This is just the beginning of our plans to be at the heart of Britain’s full fibre future.”

“Investment in ultrafast fibre broadband is crucial for the economic and social vibrancy of our county,” said North Yorkshire County Councillor, Carl Les. “We will be coordinating with TalkTalk through our streetworks team to minimise disruption from the works and ensure this is delivered smoothly so residents can enjoy the benefits of faster, more reliable broadband.”

The leadership of this nascent venture seems to be a bit of a work in progress. It will be chaired by former BT and Telecom New Zealand exec Paul Reynolds but TalkTalk COO Mark Bligh seems to have decided at the last minute not to be its CEO, with that role being taken by Neil McArthur. TalkTalk rather cryptically spoke of Bligh pursuing other opportunities, but he’s still listed as COO on its website and on LinkedIn.

In other news TalkTalk announced a solid set of quarterly numbers, implying some of the turmoil of recent years is behind it, and announced it will be moving its HQ from London to Salford, Manchester. It gave no especially specific reason for the move, but it’s presumably cheaper than London and will be much nearer to all this northern fibre it’s investing in.

Iliad Italy hits 2.2 million subscribers in Q3 2018

French telecoms group Iliad has released its Q3 2018 numbers and they reveal continued strong subscriber growth from its new Italian business.

By the end of September Iliad Italy had 2.23 million subscribers, up from a million in mid July. This means the subscriber growth rate slowed a bit, but not much, and there was still plenty of momentum. On top of that Iliad Italy contributed €46 million to group revenues in Q3, having chipped in less than ten prior to that, so Iliad seems to be doing a decent job of monetising those subscribers already.

Iliad Q3 2018

Here’s what Iliad had to say in its quarterly report about its Italian performance:

  • Outstanding commercial success: The Group had over 2.23 million subscribers7 in Italy at end-September 2018, just four months after launching its Italian mobile business. By way of comparison, the Group signed up 2.6 million subscribers in three months when it launched Free Mobile in France.
  • A successful upscaling strategy: The Group successfully introduced two consecutive price increases and enriched its offerings, while pursuing its strong pace of net adds. At September 30, 2018, Iliad’s original offer in Italy was invoiced at €7.99/month, including unlimited calls and texts, as well as 50 GB of 4G/4G+ and 4GB roaming allowance.
  • A recognized brand, with the Iliad brand now widely recognized in Italy: At end-September, four out of five Italians knew the Iliad brand, compared with one out of ten before the launch.
  • Third-quarter 2018 revenues generated by Iliad’s Italian operations totaling €46 million, already representing almost 4% of the Group’s total revenues: This amount comprises (i) the subscription cost (€5.99/month, €6.99/month or €7.99/month depending on the offer) and (ii) SIM card activations carried out during the period, at a price of €9.99 per SIM card.

Over in France revenues declined by 2%, with landline operations and sales of mobile handsets cancelling out growth in mobile subscriber revenues. Iliad just blamed competition for the landline situation and lauded an improvement in subscriber mix (i.e. more postpaid) for the mobile improvement. The main reason for the handset revenue decline was a ‘stricter commercial strategy for rental offers’.

Vodafone blames big loss on India and other impairments

UK operator group Vodafone announced a net loss of €7.8 billion for the six months to the end of September, thanks largely to some one-off impairments.

Group revenue was down 5.5% year-on-year, but the company wrote down €3.5 bil on the disposal of Vodafone India and a similar amount for various impairments that also included India as well as Spain and Romania. There was also the time-honoured adjustments for currency and various other bits of accounting arcana that presumably make sense to someone. Here’s the P&L, which registers a slightly higher loss, but what’s a hundred mil between friends?

Vodafone 2018 P&L

“Our performance in the majority of our markets has been good during the first half of the year, and we have taken decisive commercial and operational actions to respond to challenging competitive conditions in Italy and Spain,” said Vodafone Group Chief Exec Nick Read.

“Looking ahead, my new strategic priorities focus on driving greater consistency of commercial execution, accelerating digital transformation, radically simplifying our operating model and generating better returns from our infrastructure assets. Our goal is to deepen customer engagement through a broader offering of products and services and to deliver the best digital customer experience, supported by consistent investment in our leading Gigabit networks.

“As part of our effort to improve returns, we are creating a virtual internal tower company across our European operations, and we are reviewing the best strategic and financial direction for these assets. Our focus on organic growth along with the strategic and financial benefits of the proposed acquisition of Liberty Global’s assets give confidence in the Group’s ability to grow free cash flow, which underpins our dividend.”

The comment about towers seems to imply Read is thinking of selling and leasing back some towers, or something like that. The upshot seems to be that Vodafone is fine for cash (the write-downs were mainly the devaluation of existing assets, so there’s no expenditure involved) and so it’s fine to maintain the current dividend level. This resulted in Vodafone’s share price ending the day around 8% up, so no worries. You can read further analysis of Vodafone’s numbers here.

Qualcomm shares fall on concerns about its dispute with Apple

Mobile chip giant Qualcomm delivered fairly solid quarterly numbers but it lowered its outlook thanks mainly to Apple.

A slight year-on-year fall in revenue was still better than expected, as were its earnings per share. But guidance for the next quarter was reduced by around 20% for both chip shipments and licensing revenues. Apple seems to be to blame for both, with the gadget giant switching to Intel for its modems and the ongoing dispute over licensing terms resulting in a bunch of payments being withheld.

Qualcomm Q3 outlook

“We delivered a strong quarter, with Non-GAAP earnings per share above the high end of our prior expectations, on greater than expected chipset demand in QCT and lower operating expenses,” said Steve Mollenkopf, CEO of Qualcomm. “We are executing well on our strategic objectives, including driving the commercialization of 5G globally in 2019 and returning significant capital to our stockholders.”

Despite this Qualcomm’s share price was down 7% at time of writing. Speaking to Reuters, Qualcomm’s CFO George Davis speculated that the chip shipment downgrade might have been greater than many anticipated. On top of that the dispute with Apple is showing no sign of resolution, so investors may be increasingly inclined to price in a negative outcome for Qualcomm.

Softbank is now more of a VC than a telco group

Back in 2016 when Softbank CEO Masayoshi Son announced plans for the $100 billion Vision Fund it looks like a ludicrous plan, but with such incredible growth perhaps we should ask whether Son has been missing his calling for decades.

Looking at the financials for the first half of 2018, the most interesting story aspect is linked back to the Softbank Vision Fund (SVF) and Delta Fund (DF) investment bodies. Over the first six months, net sales for the Softbank Group came in at roughly $41 billion, with the team collecting an operating income of roughly $12.5 billion. The operating income attributable to the SVF and DF is $5.7 billion, roughly 45%.

45% might sound like a good number, but it becomes even more impressive when you consider how the funds are accelerating. In the first three months of 2018, the funds accounted for approximately 33% of operating income, but this ratio increases to 55% when you look at the second quarter alone. As you can see from the table below, the cash being generated by the funds is quickly racking up.

Q3 2017 Q4 2017 Q1 2018 Q2 2018
Gain on investments for SVF and DF $530 million $860 million 2.18 billion 3.55 billion
Realized gain on investments NA NA NA 1.29 billion
Unrealized gain on valuation of investments $490 million $830 million $2.24 billion $2.27 billion
Interest and dividend from investments $33 million $20 million $12 million $10 million

(Approximate values after currency conversion)

The fund itself, which has come under pressure recently due to involvement from Saudi Arabia, has consistently been consistently questioned by investors, though perhaps monstrous profit is a language which they will be more familiar with. Son has prioritised artificial intelligence in a portfolio which contains investments in Uber, Nvidia, Arm, GM Cruise, Doordash and Compass. The only one which doesn’t really fit into the family is WeWork, a shared office business which would be more comfortable inside a real-estate investment portfolio. That said, few will argue with the results.

Looking at the rest of the business, the story is pretty positive if less glamorous next to these monstrous profits. Total revenues and profits are up in the Softbank telco business, while the net gain on customer subscriptions is up approximately 1.2 million in comparison to the same period of 2017. Churn was also at a healthy 0.93% for the quarter and ARPU is flat. Not a bad return for the period. Sprint in another which is performing surprisingly well. Although subscription numbers are down sequentially, year-on-year Sprint managed to find 520,000 subscriptions from somewhere.

Son’s traditional stomping ground is looking very healthy, though with the acceleration of the VCs you really have to wonder whether the audacious businessman has been in the wrong industry all these years.

Apple shares fall 5% on weak forecast

With Apple pointing the finger at fluctuating currency, poor performance in emerging markets and supply issues, its busiest quarter might not be as busy as investors had hoped.

While CEO Tim Cook has defended the soundness of the supply chain, worries over whether the business can keep up with demand over the final quarter leading into Christmas seem to have spooked investors. Combined with warnings over performance in emerging markets as well as volatile currencies around the world, the team has stated it might miss guidance over the next three months, sending share price down 5% in afterhours trading.

“The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia,” said Cook. “These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.”

India should be seen as quite a worry for the iChief’s as while the country has been undergoing its own digital revolution over the last 18 months, Apple seem to be missing out on the biggest rewards. With India now being the second-largest smartphone market in the world, but with half the penetration of China, the opportunities are clear. Despite attention from Apple, it’s opening new production facilities and shops across the country, according to data from Canalys it is yet to break into the top-five smartphone brands.

Shipments in India across the most recent quarter dropped by 1%, though Xiaomi grew 31.5% year-on-year to claim the number on spot, at the expense of Samsung, where shipments dropped 1.6%. Vivo, Oppo and Micromax complete the top five, while the ‘others’ saw shipments decrease 34%. The Chinese brands seem to have found the right recipe to appeal to the Indian user, while Apple is still searching for the sweet spot.

“To give you a perspective in of some detail, our business in India in Q4 was flat,” said Cook. “Obviously, we would like to see that be a huge growth. Brazil was down somewhat compared to the previous year. And so I think, or at least the way that I see these, is each one of the emerging markets has a bit of a different story, and I don’t see it as some sort of issue that is common between those for the most part.”

One market where this isn’t the case is China, with the business growing 16% year-on-year. On the money side of things, it certainly is a different story. Total revenues across the business grew to $62 billion, an increase of 20% over the same period in 2017, though guidance is not as positive. Cook expects Apple to pocket between $89 billion and $93 billion over the next three months, though Wall Street has generally been hoping $93 billion would be the bottom end of the guidance.

Looking at the explanation, CFO Luca Maestri has pointed to four areas. Firstly, the team have launched products in reverse order compared to last year. Secondly, with many international currencies depreciating against the US dollar, Maestri anticipates a $2 billion headwind as a result. Thirdly, due to the number of products Apple has pumped into the market, the team is nervous about supply/demand. And finally, at the macroeconomic level in some emerging markets consumer confidence is not as high as it was 12 months ago.

Heading back to the positives, Apple is making more money now than it was a year ago. Despite there being no shipment growth in any of the major product lines (iPhone was flat year-on-year, iPad was down 6% and Mac was down 2%), Apple is still a money making machine. iPhone revenue increased 29% thanks to ridiculously high unit costs, while the services business was up 17%. This is an area which will be of significant interest to investors, as there is only so much Cook and co. can increase the price of iPhones to compensate for flat growth.

As part of the services division, the App Store has been trundling along positively, though with companies like Netflix and Fortnite stating they would be circumnavigating both the App Store and Google Play, all involved will hope this does not encourage others to do the same. Cook pointed out that the largest developer only account for 0.3% of revenues at the App Store, losing one or two won’t matter, but if the trend spreads too far the product might find troubling times ahead.

Overall, Apple is still in an incredibly dominant position, though the inability to capitalise on opportunities in the developing markets should be a slight worry.

Apple Financials

Apple Products

BT increases profit on declining revenues by getting rid of 2,000 people

Operator group BT saw its revenues decline in the six months to the end of September but still managed a 30% increase in net profit.

Profit is revenue minus overheads and reducing the latter is a time-honoured way for companies to keep themselves in the black. Among BT’s five strategic highlights for the fiscal half-year, which included finding a new CEO and demonstrating its 5G capability, was the ‘removal’ of around 2,000 roles over that time. The other two were a small NPS gain and some vague Openreach achievement.

“We continued to generate positive momentum in the second quarter resulting in encouraging results for the half year,” said Chief Exec Gaving Patterson, possibly for the last time. “We are successfully delivering against the core pillars of our strategy with improved customer experience metrics, accelerating ultrafast deployment and positive progress towards transforming our operating model.

“In consumer, we continue to see strong sales of our converged product, BT Plus, and have seen good mobile sales following new handset launches. Last month EE demonstrated 5G capability from a live site in Canary Wharf. We have maintained momentum in our enterprise businesses despite legacy product declines.”

BT had some fun with its slide deck this quarter, a highlight being the below attempt to illustrate its group strategy via the kind of rectangle-stacking larks usually associated with software architecture diagrams. It presumably took a while to do but apart from being an efficient way to display a number of generic corporate aspirations it’s not obvious what BT is trying to say.

BT Q3 2018 slide 1

There were also distinct slides summarising the performance of each business group. As you can see below revenue growth was hard to find, and it’s interesting to note which other metrics were cherry-picked to show the division in the best light. In terms of revenue BT remains very much a work in progress but making a decent profit is certainly a step in the right direction. You can read further analysis on this here.

BT Q3 2018 slide 2

BT Q3 2018 slide 3

BT Q3 2018 slide 4

BT Q3 2018 slide 5

BT Q3 2018 slide 6