Wearables are on the up – IDC

Global shipments of wearable devices are increasingly healthily increasing, according to IDC estimates, up 55% to 49.6 million over the first three months of 2019.

Wearables are a tricky segment for the technology and telco world. So much is promised, a new revolution in digital society, but for years it has failed to deliver on the potential. That said, the last couple of quarters have looked a lot more promising.

“The elimination of headphone jacks and the increased usage of smart assistants both inside and outside the home have been driving factors in the growth of ear-worn wearables,” said Jitesh Ubrani Research Manager for IDC Mobile Device Trackers.

“Looking ahead, this will become an increasingly important category as major platform and device makers use ear-worn devices as an on-ramp to entice consumers into an ecosystem of wearable devices that complement the smartphone but also offer the ability to leave the phone behind when necessary.”

This was perhaps the watershed moment for wearables; standalone connectivity. Smart watches, the flagbearer for the segment on the whole, struggled to gain traction due to a lack of standalone connectivity. These certainly weren’t fashion accessories in the early days and tethering the devices to a smartphone largely undermined the selling points.

With standalone connectivity there is now attention on the devices, and the increasing adoption of voice user interface, the devices more appealing for a wider range of applications. That said, the fitness niche is still proving to be a profitable one.

“Shipments of wristwear – including watches and wristbands – grew 31.6% year over year, and continue to dominate the wearables landscape,” said Ramon Llamas, Research Director for Wearables at IDC.

“While the functionalities and capabilities have grown and changed, the one common thread is the relentless focus on health and fitness. This has resonated strongly with users and health insurance companies alike, and new health and fitness insights attract a larger audience.”

Brand Shipments (million) Market share Year-on-year growth
Apple 12.8 25.8% 49.5%
Xiaomi 6.6 13.3% 68.2%
Huawei 5 10% 282.2%
Samsung 4.3 8.7% 151.6%
Fitbit 2.9 5.9% 35.7%
Others 18 36.3% 26%

Interestingly enough, over the last few quarters the top five manufacturers have been consolidating their position in the market, with the ‘others’ category claiming less and less. Like the smartphone space, this is increasingly looking like a market which will be tough for new-comers to crack, with market preferences shifting towards those who have an established brand in the space.

Huawei holds onto number two smartphone spot… for the moment

Huawei has held onto the number two spot for smartphone shipments during the first quarter of 2019, but storm clouds are gathering on the horizon.

According to estimates from Gartner, Samsung is leading the smartphone manufacturers owning 19.2% of market share over the first three months, though Huawei is closing the gap with 15.7%. All three Chinese brands in the top five grew market share over the period, with Apple also declining to 11.9%, shrinking in the Huawei shadow.

Brand Q1 2019 market share Q1 2019 shipments Q1 2018 market share Q1 2018 shipments
Samsung 19.2% 71.6 million 20.5% 78.5 million
Huawei 15.7% 58.4 million 10.5% 40.4 million
Apple 11.9% 44.5 million 14.1% 54 million
Oppo 7.9% 29.6 million 7.3% 28.1 million
Vivo 7.3% 27.3 million 6.1% 23.2 million
Others 37.9% 141.4 million 41.5% 159 million

This might look very promising for the under-fire Chinese vendor, but it does seem the joy might be short-lived. While European and Asian governments are keen not to ban the vendor from selling smartphones or infrastructure equipment in their markets, they might not be able to stem consumer fears.

The anti-China rhetoric might not be anywhere near the same levels as in the US, but consumers will not be keen to invest in a substandard product. This might be the case moving forward, should Huawei remain on the ‘Entity List’, effectively banning it from working with any US firms, including Google.

The prospect of an Android-less Huawei device, and a home-grown operating system to replace it, has been much discussed, but soon enough the reality will hit home with consumers. Without support for popular Google-owned applications, experience will soon drop. Huawei might be able to provide a suitably effective alternative, but not being able to access Google’s apps and services will turn off some consumers.

One of the issues Huawei will face is that of the unknown. Huawei’s OS might be perfectly good, but no-one knows. It might have the supporting ecosystem, but no-one knows. It might be able to create apps to rival Google offerings, but no-one knows. Asking cash-conscious consumers to spend so much on so many unknowns will be a very difficult task.

This might not have an impact on Huawei’s biggest market, China, where the firm controls around 29% market share for smartphones, but Europeans are Google obsessed. This is Huawei’s second biggest region, representing 69% year-on-year growth for the first quarter, and one which represents more opportunity for growth. The US friction could put a severe dent in the consumer unit’s ambitions.

For Apple, it seems its traditional business is becoming increasingly competitive. There will of course be several reasons for this, namely a lack of innovation in recent years and extortionate prices, but there might be a glimmer of hope on the horizon.

As it stands, the misery is likely to continue over the next couple of months. With 5G phones hitting the shelves, early adopters may well snub their loyalties to experience the connectivity euphoria. Apple will not release a 5G-compatible device until 2020, but by missing out on the first wave it will learn the pitfalls of rival launches.

The second-wave of devices, Apple will be a front-runner in this one, will likely be where we see the greatest progress. The bugs and shortfalls will be identified and corrected, and there might well be some applications to make use of the data headroom which is created through 5G. There will also be more attractive tariffs available, with prices driven down by competition. These factors will push 5G into greater market adoption.

It might also recapture the loyalties of faltering iLifers…

Winning in the market share rankings today is certainly something to shout about, however success needs to be maintained over the next 12-18 months. Once 5G is pushed out to the mass market, there will be plenty of opportunities to sell extortionately priced devices. Apple appear to be aiming at this second-phase of 5G devices, building with the consumer hype, while Huawei will have to navigate the stormy seas.

If US tension forces Huawei devices out of consumer hands before the 5G device refreshment cycle, it might just miss out on the bigger prize.

US drives solid Deutsche Telekom numbers but German 5G auction is a drag

German operator group Deutsche Telekom has reported solid Q1 revenue growth, driven largely by T-Mobile US.

As you can see from the table below, revenues and EBITDA all grew nicely in Q1 2019. Profits, however, went in the opposite direction, apparently due to one-off things like the cost of trying to get the merger between TMUS and Sprint approved. Speaking of the US the second table shows just how much of the revenue growth is attributable to TMUS.

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Revenue 19,488 17,924 8.7 75,656
Proportion generated internationally in % 69.0 66.6 2.4p 67.8
EBITDA 6,461 5,269 22.6 21,836
Adjusted EBITDA 6,901 5,549 24.4 23,333
Adjusted EBITDA AL 5,940 5,487 8.3 23,074
Net profit 900 992 (9.3) 2,166
Adjusted net profit 1,183 1,190 (0.6) 4,545
Free cash flowa 2,370 1,382 71.5 6,250
Free cash flow ALa 1,557 1,318 18.1 6,051
Cash capexb 3,827 3,139 21.9 12,492
Cash capexb(before spectrum) 3,682 3,076 19.7 12,223
Net debtc 71,876 50,455 42.5 55,425
Number of employeesd 214,609 216,926 (1.1) 215,675

 

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Germany
Total revenue 5,357 5,325 0.6 21,700
EBITDA 1,946 1,915 1.6 8,012
Adjusted EBITDA 2,114 2,082 1.5 8,610
Adjusted EBITDA AL 2,108 2,058 2.4 8,516
Number of employeesa 62,358 64,695 (3.6) 62,621
United States
Total revenue 9,796 8,455 15.9 36,522
US-$ 11,124 10,394 7.0 43,063
EBITDA 3,210 2,360 36.0 9,928
Adjusted EBITDA 3,309 2,332 41.9 10,088
Adjusted EBITDA AL 2,679 2,331 14.9 10,084
US-$ 3,042 2,865 6.2 11,901
Europeb
Total revenue 2,891 2,811 2.8 11,885
EBITDA 1,035 905 14.4 3,757
Adjusted EBITDA 1,059 911 16.2 3,880
Adjusted EBITDA AL 945 898 5.2 3,813
Systems Solutions
Order entry 1,609 1,506 6.8 6,776
Total revenue 1,630 1,665 (2.1) 6,936
Adj. EBIT margin (%) (0.2) (2.3) 2.1p 0.5
EBITDA 79 19 n.a. 163
Adjusted EBITDA 125 57 n.a. 429
Adjusted EBITDA AL 92 60 53.3 442

“We got off to a successful start to the year,” said Tim Höttges, CEO of DT. “Deutsche Telekom has much more to offer than just our sensational success in the United States. We are seeing positive trends throughout the Group.”

Not included in his canned comments, but picked up by Reuters, was Höttges inevitable irritation at the amount of cash DT is having to drop on the interminable German 5G spectrum auction. We’re on round 305 of the bidding, believe it or not, and the total pledged has now reached €5,687,520,000. Expect to hear persistent muttering about how that’s money they can’t spend on infrastructure, etc, before long.

BT reports flat full year numbers but feels bullish about fibre

UK telecoms group BT revealed flat revenue growth on its full year 2018 report, but its new CEO said all the right things about investment.

Revenues were down a percent, but earnings per share were still up 6 percent. Of the business units only the biggest – consumer – showed any growth, with all the B2B units showing small declines. BT expects the 2019 financial year to deliver more of the same, because reasons. It said it has raised its capex guidance to £3.8 billion, but it ended up spending almost £4 billion in the 2018 financial year despite guiding £3.7 billion a year ago.

BT FY 2018 table

“BT delivered solid results for the year, in line with our guidance, with adjusted profit growth in Consumer and Global Services offset by declines in Enterprise and Openreach,” said new Chief Exec Philip Jansen.

“We need to invest to improve our customer propositions and competitiveness. We need to invest to stay ahead in our fixed, mobile and core networks, and we need to invest to overhaul our business to ensure that we are using the latest systems and technology to improve our efficiency and become more agile.

“Our aim is to deliver the best converged network and be the leader in fixed ultrafast and mobile 5G networks. We are increasingly confident in the environment for investment in the UK. We have already announced the first 16 UK cities for 5G investment.

“Today we are announcing an increased target to pass 4m premises with ultrafast FTTP technology by 2020/21, up from 3m, and an ambition to pass 15 million premises by the mid-2020s, up from 10 million, if the conditions are right, especially the regulatory and policy enablers.”

Those infrastructure ambitions are laudable, and were echoed by Openreach CEO Clive Selley, but don’t seem to tally with previous statements on the matter. A year ago Selley said “This year we’ll double our FTTP footprint and by 2020, we will have built it to 3 million homes across the UK. We want to reach 10m premises by the mid-2020s, and believe we can ultimately fully-fibre the majority of the UK under the right conditions.”

So the mid-2020s bit is fine but the 4m promise now has a revised deadline of April 2021, a year and a quarter later than the previous 3m promise. Now we might be missing something here but rather than increasing the target, all BT/Openreach seems to have done is insert another milestone a bit further down the line, which feels a bit deceptive.

“In cut throat market like the UK, there are few opportunities to grow,” said telecoms analyst Paolo Pescatore. “Moves to accelerate plans for its fibre broadband rollout, 5G and cross selling existing services can help increase the group’s bottom line but also require significant investment. The lack of any significant shift in strategy is unsurprising as it’s still early days for Philip Jansen.”

BT is hardly alone in hedging any investment pledge, however vague, with the caveat that it all depends on the regulatory environment. At least it has stopped openly begging for public money, for now. But the barely adjusted capex outlook implies even that pledge is trivial and Jansen might need to test his own investors’ patience with a more aggressive approach once he’s fully up to speed.

Apple drives global smartwatch market up 48% in Q1

The latest global smartwatch shipment numbers from Counterpoint Research reveal strong segment growth driven largely by Apple.

The fruity gadget giant accounts for over a third of the market, so when its shipments increase by 49% year-on-year it’s not surprising to see the whole market grow in line with that. Intriguingly Apple’s biggest smartphone competitors seem to be getting their act together in this smartwatch renaissance. Both Samsung and Huawei gained overall market share as you can see in the chart below.

counterpoint smartwatch q1 19

“Apple Watch shipments grew a solid 49% YoY despite the weak demand for its iPhones,” said Satyajit Sinhaof Counterpoint. “Apple continues to focus on the health-related features like ECG and fall detection in the Apple Watch Series 4. The ECG capability in the Apple Watch is the most desirable feature, according to our latest Consumer Lens survey. Apple has now received approval on its ECG features from healthcare authorities of Hong Kong and 19 other countries including France, Germany, Italy, Spain, and the UK.

“The heart rate sensor for health monitoring, GPS and pedometer sensors for fitness, and NFC embedded for payment are some of the key integrated technologies. Related use-cases and in addition to notifications with cellular capability are driving the smartwatch adoption. However, limited battery life remains a pain point for consumer’s decision-making process, irrespective of region and price band.”

“Samsung grew exponentially at 127% YoY as the Korean brand’s market share jumped to 11% in Q1 2019,” said Sujeong Lim of Counterpoint. “Its success was due to the latest Galaxy watch series which came with better battery life as well as a very traditional round clockface design. Further, it provides cellular LTE connectivity which gives it an edge over others targeting Android-based smartphone users. It is a great alternative to the Apple Watch for Android and Samsung’s huge installed base of users.

“Huawei’s market share jumped to 3% in Q1 2019 due to good traction for its latest Huawei Watch GT. The striking design, affordability, leveraging the growing ‘Huawei’ brand mindshare, and the smartphone user base is driving demand. Further, Huawei has shifted focus to sell more Huawei branded smartwatches whereas the smart bands are selling well under its Honor brand.”

So it looks like the big smartphone brands have finally worked out how to persuade their customers to buy smartwatches too, presumably helped by actually finding some useful functions for them. It’s still hard to see this as anything other than a fairly niche category for fitness nuts and hypochondriacs though and it will probably remain so until the voice and gesture UIs become so useful that it becomes viable to leave your smartphone at home.

Qualcomm banks almost $5 billion from Apple and that’s just the start

In its latest quarterly earnings announcement Qualcomm revealed just some of the cash it’s trousering from Apple after winning their legal fight.

“On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties,” said the relevant bit of the report. “We also entered into a six-year global patent license agreement with Apple, effective as of April 1, 2019, which includes an option for Apple to extend for an additional two years, and a multi-year chipset supply agreement with Apple.

“While we continue to assess the accounting impacts of the agreements, our financial guidance for the third quarter of fiscal 2019 includes estimated revenues of $4.5 billion to $4.7 billion resulting from the settlement (which will be excluded from our Non-GAAP results), consisting of a payment from Apple and the release of our obligations to pay or refund Apple and the contract manufacturers certain customer-related liabilities.

“In addition, our financial guidance for the third quarter of fiscal 2019 includes estimated QTL revenues for royalties due from Apple and its contract manufacturers for sales made in the June 2019 quarter.”

Fiscal Q3 for Qualcomm is equivalent to financial Q2, so it covers all the initial payments Apple will make to Qualcomm as a result of their settlement. If you factor in the June quarter sales royalties that wouldn’t otherwise have been paid that should mean Qualcomm’s current account will be around $5 billion better off by the Summer.

There didn’t seem to be any details revealed about the new patent licence agreement, but the two-year backlog points to a historical rate of around $200 million per month. Given the apparently dominant negotiating position Qualcomm will have been in regarding access to its 5G products it’s easy to believe Apple will be handing over a fair bit more than that for the foreseeable future.

There was one other comment of interest in Qualcomm’s outlook. “Our financial guidance for the third quarter of fiscal 2019 also includes $150 million of QTL revenues from Huawei, which represents a minimum, non-refundable amount for royalties due by Huawei while negotiations continue. This payment does not reflect the full amount of royalties due under the underlying license agreement.”

While this is essentially a restatement of the announcement Qualcomm made a quarter ago, it implies the dispute still isn’t resolved. Aside from all this Qualcomm’s Q1 revenues were roughly in line with expectations but a relatively downbeat general outlook drove its shares down a couple of percent.

Global smartphone shipments plunge to lowest level since 2014

The decline of the global smartphone market continues but nobody sent Huawei the memo as it raced past Apple into second place.

According to Strategy Analytics, from which we derive the majority of our smartphone numbers below, 330.4 million smartphone units were shipped in Q1 2019. This represented a year-on-year decline of 4% and marked the lowest quarterly total since Q3 2014. Among the vendors Apple was the biggest loser and was easily overtaken for second place by Huawei thanks to remarkable 50% year-on-year shipment growth.

“The global smartphone market has declined again on an annual basis, but the fall is less severe than before, and this was the industry’s best performance for three quarters,” said SA’s Linda Sui. “Global smartphone shipments are finally showing signs of stabilizing, due to relatively improved demand in major markets like China. The outlook for later this year is improving.”

“Huawei surged 50% annually and outgrew all major rivals to ship 59.1 million smartphones worldwide during Q1 2019, up from 39.3 million in Q1 2018,” said Neil Mawston of SA. “Huawei captured a record 18 percent global smartphone marketshare in Q1 2019. Huawei is closing in on Samsung and streaking ahead of Apple, due to its strong presence across China, Western Europe and Africa.”

“Apple iPhone shipped 43.1 million units to capture 13 percent global smartphone marketshare in Q1 2019, dipping from 15 percent a year ago,” said Woody Oh of SA. “Apple lost ground in China during the quarter and is struggling to make headway in price-sensitive India. However, decent price cuts in China and India during recent weeks indicate the iPhone will bounce back slightly in those two countries in the next quarter.”

While shipments might be going down the toilet, the total value of those shipments seems to be stable thanks to increasing average selling prices. “By revenue, the situation is healthier, due to higher average prices (like expensive iPhones),” said Mawston. “Global revenue today is broadly around the same level as the average quarter last year.”

smartphone shipments q1 2019

YouTube censorship contributes to disappointing Google numbers

Google holding company Alphabet saw its share price fall by 8% after it announced disappointing Q1 numbers.

The company was fairly elusive about the reasons for a deceleration in its revenue growth on the subsequent revenue call, but many commentators picked up on comments around YouTube as significant.

“YouTube’s top priority is responsibility,” said Google CEO Sundar Pichai. “As one example, earlier this year YouTube announced changes that reduce recommendations of content that comes close to violating our guidelines or that misinforms in harmful ways.”

“…while YouTube Clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube Click growth decelerated versus what was a strong Q1 last year reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience,” said CFO Ruth Porat.

At least one analyst on the call expressed frustration at the lack of further clarity on the reasons why Google’s revenues aren’t what they expected them to be, but the YouTube stuff seems fairly self-explanatory. Pichai made it clear that YouTube is all about reducing perceived harmful content on the platform, while Porat referred to changes made at YouTube in early 2018.

So what were those changes? To YouTubers they were one of many wholesale restrictions on the types of content that are monetised (i.e. have ads served on them), broadly referred to as ‘adpocalypse’. Every now and then a big brand found its ads served against content it disapproved of, resulting in it pulling its ads from YouTube entirely. In the resulting commercial panic YouTube moved to demonetize broad swathes of content.

While this is an understandable immediate reaction to a clear business threat, it also undermines the central concept of YouTube, which is to provide a platform for anyone to publish video. On top of that YouTube increasingly censors its platform, including closing comments, tweaking the recommendation algorithm and sometimes even banning entire channels. These restrictions must surely have contributed to the amount of ad revenue coming in, but Google seems to have decided it’s worth it to keep the big brands sweet.

Here’s some further analysis from prominent YouTuber Tim Pool followed by an example of just the kind of indie creativity YouTube has built its success on (which, to be fair, doesn’t seem to have been demonetised this time). A move towards favouring big corporates over independent producers is a much bigger risk than you might imagine for YouTube, as Google’s disappointing Q1 numbers imply.

 

Intel admits losing Apple caused it to ditch 5G modems – well duh

Chip giant Intel silenced the non-speculation about it bailing on its much heralded 5G modem project by admitting it was due to losing Apple as a customer.

The scoop comes courtesy of the paywalled WSJ and passed on by The Verge. Intel CEO Bob Swan apparently fessed up to the WSJ saying “In light of the announcement of Apple and Qualcomm, we assessed the prospects for us to make money while delivering this technology for smartphones and concluded at the time that we just didn’t see a path.”

That comment was only a minor elaboration on what Swan said on Intel’s recent earnings call. “As you know, we recently sharpened our 5G focus,” said Swan, in textbook earnings call language. “When it became apparent that we don’t have a clear path to profitability in 5G smartphone modems, we acted. We are now winding down that business and conducting a strategic assessment of 5G modems for the PC and IoT sectors while continuing to meet our current 4G customer commitments.”

Now it’s debatable how much profitability Intel would have derived from its 5G modem sales to Apple if some commentators are to be believed, so the ‘path to profitability’ bit seems like a massive euphemism for ‘likelihood that we will ever deliver a competitive product’ to us. To be fair to Swan there’s no nice way of publicly admitting abject failure so he’s entitled to dance around the issue a tad.

Since it’s now clear that Apple was the only significant customer for its 5G modem and it has apparently deemed it too much of a liability to stick with it’s worth reviewing Intel’s historical pronouncements on the matter.

Intel reckons it has the first global 5G modem

Chip-makers embark on pre-MWC 5G virtue-signalling frenzy

Intel continues to insist it’s really good at 5G

Intel triggered into joining Qualcomm Apple spat

Intel brings forward ‘launch’ of 5G modem in bid to silence doubters

In hindsight it’s all a bit tragic isn’t it? While we don’t doubt Intel genuinely wanted to compete in the modem market it also seems to have been played like a fiddle by Apple. The fruity gadget giant used Intel as a pawn in its hostile negotiations with Qualcomm and dropped it like a bad habit as soon as that became convenient. Cold.

Intel had so little faith in the product of what must have been billions of dollars of effort put into 5G modem development that as soon as its sugar daddy went back to its former partner it pulled the plug immediately. It must surely have seen this coming for a while with all the talk of Apple trying to develop its own modems, so it was just a matter of when it owned up to its 5G failure.

To be honest 5G modems seem to be the least of Intel’s problems right now so it may have been grateful to have ditched that distraction. Swan was forced to also admit Intel was revising down its full year revenue outlook by a whopping $2.5 billion on the earnings call, driving Intel’s shares down 8% at time of writing.

“Our conversations with customers and partners across our PC and data-centric businesses over the past couple of months have made several trends clear,” said Sawn. “The decline in memory pricing has intensified. The data center inventory and capacity digestion that we described in January is more pronounced than we expected, and China headwinds have increased, leading to a more cautious IT spending environment.

“And yet those same customer conversations reinforce our confidence that demand will improve in the second half. So we’ve reassessed our ’19 expectations based on the challenges we’re seeing. Our full year outlook is now $69 billion in revenue, down 3% year-over-year and down approximately $2.5 billion from our previous estimate.”

We had a chat about the Apple/Qualcomm/Intel thing on the most recent podcast, which you can access here.

Nokia laments a weak first quarter

Finnish telecom vendor Nokia reported a disappointing Q1 of flat revenue and expanding loss. The company blamed competition and slow ramp-up of 5G.

Nokia reported a modest 2% net sales growth to reach €5.032 billion over €4.924 billion of Q1 2018, which would be down by 2% on constant currency basis. The gross margin was at 31.3%, down from 36.7% a year ago. The operating loss increased from €336 million (or -6.8% of net sales) to €524 million (-10.4%). Net cash was depleted by more than half from €4.179 billion to €1.991 billion. Earnings per share went from positive €0.02 to negative €0.02.

Nokia Q1 2019

Rajeev Suri, the President and CEO of Nokia, conceded that “Q1 was a weak quarter for Nokia.” Meanwhile, the company believes that its fortunes will improve in the rest of the year, especially in the second half.  “As the year progresses, we expect meaningful topline and margin improvements. 5G revenues are expected to grow sharply, particularly in the second half of the year, driven by our 36 commercial wins to date.”

In addition to the slow start of the year, Suri also saw risks in intensified competition and customers reassessing their investment. He said in the statement that “competitive intensity has slightly increased in certain accounts as some competitors seek to be more commercially aggressive in the early stages of 5G and as some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity.”

When looking at the results by business lines, Networks, by far the biggest segment of Nokia’s business, grew by 4%, both Software and Nokia Technologies kept flat, while sales from the Group Common and Other unit (including Alcatel Submarine, Bell Labs, Radio Frequency Systems, etc.) went down by 13%. Geographically, North America, which overtook Europe to become Nokia’s biggest market in the last quarter, fell back to below Europe in Q1 despite registering an impressive 9% year-on-year growth. Europe was largely flat with the sales keeping at €1.5 billion level. Asia Pacific grew by a decent 6% to get closer to the €1 billion mark, but the biggest loss was in Greater China, where the sales plunged by 10%, now only marginally bigger than Middle East & Africa.

To say things have not been going smoothly for Nokia recently would be an understatement. In late March, the company first announced that it had discovered certain “compliance issues” in the Alcatel-Lucent business it acquired years ago which might have “material adverse effect” on its business, causing a rush sell in the financial market, only to retract a couple of hours later to declare those issues would not have materials impact. More recently it was reported that the company has been struggling to fulfil its business contracts in Korea.

This must be a painful moment for the Nokia management and shareholders (it’s shares were down around 9% at time of writing), who have to watch its two major competitors reporting strong results while sitting on its own disappointments. Ericsson has just delivered an encouraging quarter, and Huawei, despite all the headwind, has reported a particularly impressive Q1. As Light Reading, our sister publication, said earlier, Huawei’s woes may not necessarily mean good fortunes for its two main competitors. So far they have not translated into good fortunes for at least one of them.

Comparing the numbers with Ericsson we could see that despite Ericsson’s total sales in Q1 was about 10% smaller than Nokia’s, it was considerably more profitable (gross margin at 38.4% vs. Nokia’s 31.3%), and its operation more efficient (€1.3 billion operating cost vs. Nokia’s €2.1 billion).

These are also the two key aspects the Nokia management are focusing on to turn things around. On the profitability side, Suri said “we will continue to take a balanced view, and are prepared to invest prudently in cases where there is the right longer-term profitability profile.” On the efficiency side, the company is “also progressing well with our previously announced EUR 700 million cost savings program,” Suri said in his statement.