Q4 2017 Earnings round-up: Microsoft, Qualcomm, Alibaba and AT&T

That time of the quarter is upon us so here is a quick snap-shot of the Q4 2017 results from Microsoft, Qualcomm, Alibaba and AT&T.

Microsoft

While investors might not have been blown away by this performance, all things are looking rosy for Microsoft as it hit roughly what analysts were expecting.

Share price remains relatively stable (at the time of writing) but a 12% year-on-year rise for total revenues to $28.9 billion is certainly something for Microsoft to be proud of. Operating income was also up 10% to $8.7 billion, with IoT, data, and AI services taking the praise in the cloud business.

“This quarter’s results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice,” said Satya Nadella, CEO of Microsoft. “Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth.”

Revenue in Intelligent Cloud was $7.8 billion and increased 15% year-on-year with Azure up 98%, while the Productivity and Business Processes unit, which includes Office and LinkedIn, collected $9 billion, a 25% increase. Even the More Personal Computing unit contributed to the party, perhaps owing to the Christmas period, with revenues of $12.2 billion, a year-on-year increase of 2%.

Qualcomm

On the other side of the coin, a flat financial performance from Qualcomm was not enough to stop a dip in share price as investors seemingly ponder the battles ahead.

Over the course of the last three months, Qualcomm managed to cobble together $6.1 billion in revenues, a 1% increase year-on-year, while net income was effectively nothing. Numbers like these are not exactly perfect for a management team which is trying to convince investors the Broadcom takeover is not the right path, but there is optimism.

“Our fiscal first quarter results reflect continued strong performance in our semiconductor business, as well as continued strength in 3G/4G handset ASPs,” said Steve Mollenkopf, CEO of Qualcomm. “We recently detailed our roadmap for value creation, outlining the significant growth potential for Qualcomm as we enter the 5G world and our products and technologies expand into attractive new markets.”

There is some good news however. Qualcomm effectively lost $6 billion this quarter, though this is down to the repatriation of cash owing to tax reforms in the US. While this is a win for the business, it will have to do quite a bit to convince investors it is in a good position considering the amount of time it is spending in the courtroom.

This quarter also included the European Commission’s €1 billion fine for abusing its dominant market position, as well as numerous lawsuits and countersuits to/from Apple. That said, it is a pretty fair comparison to the year before, as Q1 2017 included a $868 million imposed by the Korea Fair Trade Commission. Perhaps investors aren’t nervous about lawsuits, they’ve just gotten used to them.

Alibaba

Companies hailing from China seem to be able to print money and Alibaba is no different.

$12.8 billion in revenue, a 56% year-on-year increase, says it all. The eCommerce business grew an impressive 57% while the cloud computing side of things accounted for a 104% uplift. Revenue from digital media and entertainment division increased 33% to $832 million, with Youku video’s daily average subscribers grew over 100% year-on-year driven by successful launches of hit original drama series. Few would complain.

Tagged along with the earnings announcement was the decision to take a 33% stake in Ant Financial, the company which operates Alipay and other financial services. While this might look like a good move for the company which is looking to capitalize on the digital revolution in China, investors have been less than receptive. Although there has been a slight recovery, share price in Alibaba dropped almost 6% when the markets opened.

AT&T

Perhaps it should just be taken as standard now, but AT&T is another of the US giants to capitalize on tax reforms in the country.

Over the course of the fourth quarter, AT&T reported revenues of $41.7 billion, and profits of $19 billion, largely thanks to the tax reform. The injection of this cash will result in an extra $3 billion of cash to play with over the next twelve months, most of which will be spent on improving its network.

“The impact of tax reform and regulatory rationalization will be substantial and positive for the U.S. economy and AT&T,” said Randall Stephenson, AT&T CEO.

“Our FirstNet win and the opt-in by 100 percent of all states and territories will enable us to put the industry’s most robust spectrum assets to work in building a best-in-class nationwide network for public safety and first responders. On the Time Warner front, we look forward to presenting our case in court and closing the deal.”

The ongoing Time Warner headache seems to be one of the few negative marks over the last quarter. AT&T recorded 4.1 million total wireless net adds for the fourth quarter, only 329,000 were postpaid phone net adds however as the rest were connected devices and prepaid subs. Video added 300,000 subscriptions while there were 19,000 total broadband net adds. These aren’t the biggest numbers ever, but better than losing customers.

Nokia Q4 OK but it wants 5G spending to start ASAP

Nokia CEO Rajeev Suri has come out feeling buoyant after another year of declining sales, warning again it’ll be a tough 12 months trudging through the infrastructure desert, but the 5G oasis is almost within touching distance.

The final quarter of the year was largely in line with analyst expectations but did demonstrate a 1% decline in revenues to €6.67 billion, while across 2017 on the whole total revenues a nervous 3% to €23.2 billion. Considering where the industry is on the buying rollercoaster a 3% dip isn’t the worst case scenario, but it far from back-slapping territory.

“Looking forward on the Networks side, we expect our market to decline again in 2018, although at a slightly lower rate than our previous forecast, given early signs of improved conditions in North America,” said Suri. “For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks.”

Share price is down slightly (at the time of writing) over the last 24 hours, though it isn’t exactly an earth shaking movement. Nokia hasn’t really said anything which would surprise, scare or encourage people yet.

Yes, revenues are down but the spending days of 4G are over and 5G is yet to arrive. The rest of the industry are suffering the same drought, though Nokia seems to be weathering the dry-patch better than its Nordic neighbour Ericsson. We’re sure Suri is confident about Nokia’s positioning ahead of the 5G storm, but any CEO worth a few quid would be. And finally, winning contracts in the  US isn’t exactly anything which indicates changing tides in fortunes; Huawei and ZTE are effectively banned from the country.

Suri is doing exactly what he is supposed to do considering the market conditions. March the company through the baron patch in as good as shape as possible before 5G ends the spending scarcity and contracts are being snapped up everywhere.

Looking at the individual units, the network business was down 4% to €5.8 billion, while Technologies grew by 79% to €554 million. Nokia did sign a licensing agreement with Huawei just before Christmas though there are still very few details about this relationship. This along with an arbitration ruling related to a contract dispute with BlackBerry added €210 million of non-recurring revenue into the Technologies pot, which might go someway to explain the massive boost there.

In the downward-facing network business, Ultra Broadband Networks dropped 4% to €2.4 billion, Global Services was down 7% to €1.6 billion and IP Networks and Applications saw a dip of 1% to €1.7 billion. The fourth quarter proved to be a strong one for Nokia as total sales numbers across 2017 are a bit worse off.

Unfortunately for Suri, while this quarter was not disastrous in terms of sales totals the profit margin is starting to go down the toilet. Technologies saw a massive 146% uplift, but in networks (which accounts for 87% of the total business) the year-on-year decline was very notable.

Profits in Ultra Broadband Networks plunged 20%, Global Services nosedived 47% and IP Networks and Applications was down 12%. Interestingly enough, profits were worse off in the fourth quarter compared to the full 12 months, while sales were up. Perhaps like every business Nokia is one which gets a few end of year nerves and starts handing out the discounts willy-nilly.

Overall, Nokia is still making money. It might be making less money than before but this isn’t as bad as it could have been. That seems to be the message from the team to investors; it is a tough landscape at the moment, but there is plenty to look forward to. The infrastructure giant does seem to negotiating the difficult period between 4G and 5G sales cycles better than Ericsson, but considering the direction the Swedes are heading that doesn’t seem to be saying much these days.

Verizon is the market leader, and that doesn’t look like changing soon

T-Mobile US might do a lot of shouting about all the great things its doing, but Verizon hummed through the New Year in pretty good shape as 5G starts to emerge on the horizon.

In releasing its financial results, the three months to the end of December 2017, the lumbering giant of US telecoms revealed it is still hording a ridiculous subscription base, irrelevant to the whacky noises coming from elsewhere. Verizon finished the year with roughly 110 million postpaid subscriptions, a 2% climb from the previous year.

Earnings for the year were below analysts’ expectations, though part of the explanation might be down to the price war it has had to engage in with T-Mobile US. The race to the bottom is real in the US, though the larger the customer base, the more subscriptions there are to convert into 5G contracts when the time finally comes, later this year if you believe the Verizon PR quips. If being the biggest equates to being the best, Verizon is in a useful position.

“Verizon finished 2017 with great momentum, led by some of the best customer growth and loyalty results Verizon Wireless has delivered in recent years,” said CEO Lowell McAdam. “In 2018 we look to drive long-term shareholder value by deploying next-generation network services, leveraging global platforms such as Oath, and using our strategic Humanability approach to turn innovative ideas into realities.”

And the market seems to agree. Overnight trading on Verizon saw a slight boost for the carrier, though there was a drop once the market opened. This does seem to have stabilised, at the time of writing, roughly at yesterday’s closing price. If anything, it is another quarter negotiated in the choppy waters of the US telco space.

Revenues for the three months stood at $33.9 billion, a 5% year-on-year increase, with net income standing at $18.7 billion. Thanks to President Trump’s tax bill, Verizon added $15.849 billion to the spreadsheets, although how this money will be spent is unknown for the moment. What might be worth noting is that without this one-off tax reprieve, net income would have been lower than the same period twelve months ago.

On the wireless side of the business, total revenues stood at $23.771 billion, a 1.7% year-on-year increase, with the team adding 1.174 million postpaid subscriptions. Over the course of 2017, it added a total of 2.084 million postpaid subscriptions, so this certainly was a positive finish to the year in terms of acquiring new customers. Churn was down to 1%, compared to the 1.1% in the same quarter of 2016; most of the numbers are heading the right direction.

In the wireline business unit, things were a bit more mixed. Fios internet subscribers were up 3.5% year-on-year to 5.8 million subscriptions, though the Fios video subscriptions fell 1.6% to 4.6 million. These aren’t staggering numbers heading in either direction. There is little damage done to the business, but not exactly a huge amount to shout about year-on-year either.

Verizon hasn’t done anything exceptional or incredibly notably over the last three months, but it managed to source an extra 1.2 million subscriptions from somewhere. Keep doing what you’re doing might be the message to the wireless business from the top.