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.

Smartphone market continues to plunge, with Samsung worst hit

Samsung’s smartphone shipments have declined for the past four quarters and the overall market has followed.

At the same time Huawei continues to go from strength to strength. Annual smartphone shipment growth of 41% allowed Huawei to take second place in the global rankings last quarter and 32% growth this quarter was enough to keep Apple at bay once more. Samsung’s shipments declined by 13% this quarter and if these trends keep up Huawei could grab the top spot before long – a previously unthinkable event.

“Global smartphone shipments tumbled 8 percent annually from 393.1 million units in Q3 2017 to 360.0 million in Q3 2018,” said Linda Sui of analyst firm Strategy Analytics. “The global smartphone market has now declined for four consecutive quarters and is effectively in a recession. The smartphone industry is struggling to come to terms with heavily diminished carrier subsidies, longer replacement rates, inventory buildup in several regions, and a lack of exciting hardware design innovation.”

“Samsung is losing ground to Huawei, Xiaomi and other Chinese rivals in the huge China and India markets,” said Neil Mawston of SA. “Samsung must solve its China and India problems before it is too late. Huawei remains the world’s second largest smartphone vendor with 14 percent share. Huawei has little presence in the valuable North America market, but its Android models are wildly popular in most of the rest of the world, particularly Asia and Europe.”

One interesting twist to the numbers was Apple’s decision to stop reporting shipment numbers from next quarter onwards. Since this is always its strongest quarter you have to wonder what Apple is playing at. “Starting with the December quarter, we will no longer be providing unit sales data for iPhone, iPad and Mac,” said Apple CFO Luca Maestri on the earnings call. “As we have stated many times, our objective is to make great products and services that enrich people’s lives, and to provide an unparalleled customer experience so that our users are highly satisfied, loyal and engaged.

“As we accomplish these objectives, strong financial results follow. As demonstrated by our financial performance in recent years, the number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business. Furthermore, a unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line.”

Fair enough but the market will be the judge of how relevant Apple’s unit shipment numbers are. Companies like Strategy Analytics will still publish estimates and journalists will still write about them. Apple was one of the few smartphone vendors that still published its numbers so maybe it has decided, as has LG, to get in line with its competitors on this, with the overall declines in the smartphone market possibly contributing to that decision. But the weak reasoning offered above will leave many unanswered questions in the minds of investors.

Smartphones Q3 2018

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

 

Chip division continues to carry Samsung

Samsung has released its quarterly numbers, and while it is an improvement on the last quarter, the business is seemingly being propped up by a surging semiconductor unit.

Total revenues for the three months stood at roughly $57 billion, a 5.5% increase from the same period in 2017, while operating profit came in at roughly 15.5 billion, a year-on-year increase of 20.9%. The earnings were largely in line with the expectations the management team floated a few weeks back.

“In the third quarter, operating profit reached a new quarterly high for the company driven mainly by the continued strength of the Memory Business,” the team said in a statement. “Total revenue increased YoY and QoQ on the back of strong sales of memory products and OLED panels.

“The Korean won remained weak against the US dollar, resulting in a positive QoQ effect of approximately KRW 800 billion, experienced mainly in the components businesses. However the Korean won rose against major emerging currencies, which weighed slightly on the set businesses.”

Looking at the individual business units, the chip team rose to the top of the rankings once again. Revenues came in at roughly $22 billion for the quarter, with profit standing at $12 billion. Although demand is set to be weaker for the next quarter, the team anticipate slight increases over the next twelve months as demand for public cloud market, and mobile storage expands.

With fingers pointing to increased competition, revenues fell in the IT & Mobile Communications with over smartphone shipments remaining flat due to a decrease in sales of mid- to low-end products. High promotional costs and fluctuating currencies have been blamed for a dip in profitability, with the division only contributing $1.9 billion, despite it claiming pretty much the same revenues as the chip boys.

Another unit worth keeping an eye on will be the Networks unit. While revenues were down year-on-year, owing to decreased investments in 4G and the 5G euphoria yet to kick in, Samsung does seem to be benefiting from the increased scrutiny placed on Huawei in recent months. With many telcos snubbing Huawei, or at least decreasing dependence on the vendor, Samsung could certainly take advantage.

With Huawei and Xiaomi offering a more sustained threat in markets where Samsung traditionally dominates, this might not be the end of the woes for the start-studded division of Samsung.

Q3 validates O2 indifference towards convergence

Telefonica’s UK business O2 has continued a strong 2018 performance with a 7.9% increase in revenues in the third quarter, while it greedily captured an additional 120,000 subscribers.

The results perhaps justify the businesses decision not to enter into the convergence fight. Back in July, CEO Mark Evans confirmed the business would continue to focus on its mobile-only proposition, and wasn’t convinced entirely by the idea of bundled services. This statement is certainly contradictory to many telcos across the world, including its own cousin, Telefonica Germany, which plugged 5G FWA at Broadband World Forum. That said, the numbers speak for themselves.

Over the last three months, total revenues stood at £1.5 billion, up 7.9% year-on-year, while mobile service revenues grew by 3.4%, thanks to customers choosing larger bundles and MVNO growth. The O2 network now has 32.3 million customers, including MVNOs such as Lycamobile, making it the busiest network in the UK. Churn was also down to 1%, which O2 claims is the best in the UK.

“We continue to put the customer at the heart of our business, delivering leading propositions and unique customer experiences, as demonstrated by the launch of our revolutionary O2 Custom Plans, exclusively available in our direct channels,” said Evans. “O2 Custom Plan offers customers real choice, by giving them control, flexibility and transparency, and has once again driven the O2 point of difference in the market.

“Our on-going commitment to invest in our network includes enhancing 4G connectivity and preparing the ground for 5G. As champions of mobile we continue to build for the future, where mobile is one of the most powerful opportunities to strengthen the UK economy and enrich our society.”

This laser like focus on mobile is probably best for everyone involved. Despite O2 leading in the market share race, it has consistently been condemned for having the worst network in the UK. This has been confirmed quarter after quarter, by a variety of different sources. Some might come to the conclusion the consistency of poor performance simply suggests the management team does not care that much. However, efforts are being made to improve this record.

In the most recent spectrum auction, O2 claimed all the available 2.3 GHz spectrum to enhance its 4G offering. This spectrum has already been put to use, while most recently O2 suggested it was going to improve connectivity in 339 rural communities throughout the UK. The business is investing in its network, with the financial results indicating O2 spent £192 million on CAPEX over the quarter, which works out at roughly 12.5% of total revenues. This is not the highest around, but it is a healthy number.

O2 is the first of the UK MNOs to release its financial results for the third quarter, so there isn’t a fair comparison to make at the moment. However, 7.9% growth is going to be a very tough number to beat. Perhaps there is something in this ‘do what you know how to do’ mentality from O2.

Facebook says sharing is increasingly going private

While announcing another solid set of numbers, Facebook revealed that sharing is increasingly moving to private channels.

This presents some business challenges for Facebook as monetising services such as instant messaging has proven to be more difficult than just slapping ads in the middle of public streams. As a consequence Facebook’s share price fluctuated a fair bit during the earnings call on the back of knee-jerk reactions from investors.

“Public sharing will always be very important, but people increasingly want to share privately too — and that includes both to smaller audiences with messaging, and ephemerally with stories,” said Facebook CEO Mark Zuckerberg in a public Facebook post. “People feel more comfortable being themselves when they know their content will only be seen by a smaller group and when their content won’t stick around forever. Messaging and stories make up the vast majority of growth in the sharing that we’re seeing.

Now, it’s worth noting that one of the main reasons people prefer our services — especially WhatsApp — is because of its stronger record on privacy. WhatsApp is completely end-to-end encrypted, does not store your messages, and doesn’t store the keys to your messages in China or anywhere else. This is important because if our systems can’t see your messages, then that means governments and bad actors won’t be able to access them through us either.”

It’s very interesting that Zuck chose to attribute such importance to privacy. There have, of course, been all sorts of panics this year around data privacy, with the Cambridge Analytica scandal still clearly fresh in Zuck’s mind. People are rightly more aware than ever of the implications of publishing their personal stuff on the internet and it’s possible that we may have reached peak social media sharing.

Another contributing factor may be the increasing likelihood of being permanently banned from social media platforms for posting content that falls fowl of increasingly broad censorship parameters. Most recently Facebook has taken down accounts associated with conservative activist group The Proud Boys and it seems likely that the move to private messaging is influenced by fear of being banned.

Zuck noted that a lot of this private sharing happens over platforms he owns – Facebook Messenger and WhatsApp – but censorship attention has now moved to his other main property: Instagram. The Daily Beast, NYT, and Verge have all written recently about how much horridness there is on Instagram and how shouldn’t be tolerated. As public sharing becomes increasingly risky, this move to private is likely to accelerate.

Share price drops for both Amazon and Google after quarterlies

Despite reporting quarterly numbers most companies would kill for Amazon and Alphabet share prices dropped by 8.6% and 5% respectively due to investor disappointment.

More than anything else it shows the high demands of investors but also the confidence which is being placed in the internet giants. With Amazon reporting a revenue increase of 29% to $56.6 billion for the quarter, while Google parent company Alphabet reported $33.7 billion, up 21%, the expectations are certainly high.

Starting with Amazon, the revenue increase of 29% paled in comparison to the more than 10X lift in net income to $2.9 billion. While this would be a regular cash bonanza for most companies around the world, sales guidance between $66.5 billion and $72.5 billion for final quarter were lower than what the market wanted to hear. The more coy guidance for Amazon’s busiest quarter resulted in the 8.6% drop, after confidence during the day sent stock up 7%.

In Google’s HQ the story was slightly different. Revenues of $33.7 billion, up 21%, and net income of $9.1 billion, compared to $6.7 billion in 2017. Shares were down 5%, following a 4.4% rise across the day, after sales figures did not hit the expected heights. The last three months have been a tough period for investors to swallow with various scandals dropping share price by 8.8% over the last three months.

Of course, it wasn’t all bad news. The cloud unit for both businesses is continuing to rack up revenues with AWS up 45% to $6.7 billion across the quarter and Google’s other revenues segment, which features cloud up 29% to $4.6 billion. Encouragingly for both, Gartner estimates the worldwide public cloud services market is projected to grow 17% percent in 2019 to total $206.2 billion, up from $175.8 billion in 2018. IaaS is set to get the largest boost, forecast to grow 27.6% in 2019 to reach $39.5 billion. With so many businesses around the world citing a cloud-first approach, it’s amazing to think only 10% of workloads have been moved into the cloud.

The relatively new venture into the world of smart speakers and virtual assistants is proving to be a continued success story as well. For Amazon, the number of Alexa-compatible smart home devices has quintupled to more than 20,000 devices from 3,500, while the team have also started to launch new products such as a smart home security solution (Alexa Guard), and Alexa is expanding what it can give updates on as well, such sports with predictions, live streams, cooking instructions and maths homework. For Google. the Assistant has expanded to 20 languages and 76 countries, while the devices with screens will help YouTube business, which is attempting to blend in more direct response adverts as well as branding to its proposition.

There will of course be short-term wins for the pair in this space, but this is a long-term bet. Once the idea has been adopted by the mass market, the opportunities to make money through third-party relationships will be quite remarkable. Search revenues can be moved into the voice domain (effectively anywhere) and look how profitable search has been for Google. This is only one way to make money, but both Amazon and Google are putting themselves in a remarkably strong position for the future.

Both businesses might have suffered in the last 24 hours but they are still in incredibly dominant positions. The cloud units still have incredible growth potential, while the smart speaker ecosystem is starting to become a reality. For Google, the is delivering amazing profitability but sales growth does seem to be slowing slightly. Amazon is delivering on the North American market but the business is not as effective on the international scene, posting a loss of $385 million.

There are issues, but these are nothing compared to the billions being raked in and the growth potential in new, lucrative markets.