Jio surges forward with subs and profits

Reliance Jio has unveiled its latest quarterly figures and, surprise surprise, subs are once again on the up as well as profits.

Monthly ARPU might have be on the decline, down to $1.77, a trend which is not showing signs of slowing, but scale seems to be the answer for Jio. The firm now has a subscriber base of 331 million, adding 24.5 million over the last three months and 116 million during the last year.

“Growth in Jio mobility services has continued to surpass all expectations,” said Mukesh Ambani, MD of Reliance Industries, Jio’s parent company.

“In less than two years of commercial operations, Jio network carried almost 11 Exabytes of data traffic during the recently concluded fiscal quarter. Jio management is focused on giving unmatched digital experience at most affordable price to every citizen of the country, and accordingly expanding the network capacity and coverage to keep pace with demand.”

The progress which has been made by the firm over the course of the last two years is remarkable and perhaps demonstrates how under-developed the Indian market actually was. Although India has been seen as a growth economy, part of the now old-fashioned BRICs group, it wasn’t until Jio shook up the market the digital revolution took hold.

Average consumption of data is now up to 11.4 GB a month, with Jio suggesting customers used 10 exabytes over its network during the quarter. The Indian consumer certainly has an appetite for data and they don’t seem to be satisfied whatsoever.

Looking at the financials, these are also very promising. Early criticism of Jio was that it was negatively impacting competition in the market as there was little profit being made by the firm. This is generally seen as a negative, as running loss leaders to kill off competition very rarely works for the greater good in the long-term, though the numbers speak for themselves.

Quarterly revenues increased 44% year-on-year, while the firm collected profits of $119 million, a 45% year-on-year boost. These numbers are attractive for the moment, but profitability currently looks to be reliant on scale and subscriber growth. Sooner or later, this growth will slow, and the team will have to look at the worrying rate at which ARPU is declining.

Period Q1 2019 Q3 2018 Q1 2018
ARPU (Indian Rupee) 122 130 154

Weak iPhone sales take bite out of Apple revenues

It might not come as a huge surprise, but the Apple financials are not as glorious and fruitful as the quarterly bonanza of yesteryear.

The devices market is plateauing, China’s economy is slowing, Indian consumers are more interested with other brands, iPhone sales are down, as is revenue and operating income, expenses are up. It doesn’t exactly paint a picture of serenity and profitability, but share price increased more than 5% in overnight trading.

CEO Tim Cook and his team did manage the situation quite effectively with a recent profit warning and have seemingly tabled a plan which has caught the interest of investors but let’s just put this overnight surge into perspective. The last couple of months have not been good for Apple. At the beginning of September, Apple share price was hovering around the $228 mark, while at the time of writing, it has declined more than 30% to $154. Cook should be nervous.

“Last night’s results beg the question, are investors falling out of love with Apple?” said Christopher Dembik, Head of Macro Analysis at Saxo Bank.

“The results of the former favourite stock – Apple was the fifth most traded stock by clients at Saxo Bank, behind Facebook, Amazon, Alibaba and Tesla – signalling a tough climate for traders right now with a gloomy global economy, weak returns across the board and whispers of another recession on the way.”

Apple Topline

Overall revenues were down to $84.3 billion, 5% lower than the same period in 2017, though it was in-line with the revised forecast from a few weeks back. For the next quarter, revenue is expected between $55 billion and $59 billion, with a gross margin between 37-38%.

Looking at the results, the iPhone weighed Apple down heavily. Shipment numbers will no-longer be released by the team, though revenues for the cornerstone product declined an almost inconceivable $9.1 billion, a 15% year-on-year drop, to $51.982 billion. This is still a huge amount of cash, but such a dramatic decline indicates someone got something very wrong somewhere.

The last couple of months of 2018 were a scrap for Apple to justify the pricing of its flagship devices. Cook and his cronies seem to have accepted what many people were telling them; the devices have become too expensive. Moving forward, the team seem to have indicated there will be price reductions.

This is what Apple have specialised in over the last few decades; customer loyalty and sweating the brand. There aren’t many cults out there who can count on their followers as loyally as Apple can count on the iLifers, but when the company was innovating they could justify marking a premium on products and rely on the Apple followers to make purchases. This doesn’t seem to be the case anymore.

If you look through the portfolio, none of the products are particularly mind-blowing. Yes, they might be high-spec and feature the Apple brand, but there has been little innovation in the last few years to justify the increasing prices. Married with consumers becoming more cash conscious, Apple has seemingly pushed its customers over the breaking point of what they are willing to spend.

That said, it isn’t just innovation which is to blame here, Apple is losing out to competitors in key markets. The Americas grew, though Europe, Japan and Greater China all declined. In the European and China markets, Chinese brands such as Huawei and One Plus has been gaining greater traction, with the price much more palatable for consumers. These are good devices which are offering just as technologically advanced features, suggesting Apple is losing the vice-like grip which it has on its customers.

Apple Breakdown

“And so, what we have done in January and in some locations and some products is essentially absorbed part or all of the foreign currency move as compared to last year and therefore get close or perhaps right on the local price from a year ago,” said Cook during the earnings call.

How much of an impact the price reductions will have remains to be seen, but what is worth noting is that there was some good news from the call. iPhone revenues might have plummeted over the period, but all other categories grew, including the much-valued software and services unit.

This is where Cook has been pinning his hopes, and there have been some gains. The software and services unit grew revenues by 19% year-on-year taking the total to $10.8 billion. Apple is attempting to evolve itself into a very different type of business, with recurring revenues as the ambition, though success has to be put into context. Yes, there have been gains, but it seems the dangers of the hardware world are being realised much faster than the benefits of software evolution.

Apple has largely struggled in the world of software and services, perhaps because its traditional business model is not suitable. When you look at where Apple has been successful in software and services, iTunes, AppleCare and iOS for example, these are all areas which tie the customer into the Apple ecosystem. They are products which build on the Steve Jobs mantra of ‘closed is better’. However, Apple will have to embrace a new mentality is it wants to succeed in the new world.

At CES, Apple captured most of the headlines without actually being there as it announced a content-based partnership with Samsung. Beginning in the Spring, new Samsung Smart TV models will offer iTunes Movies & TV Shows and Apple AirPlay 2 support for Apple customers. This is a good move from Apple, embracing the concepts of openness and collaboration which will be critical moving forwards.

Another interesting development, which has remained unconfirmed, is the creation of a Netflix-like gaming platform. Apple would herd developers and gaming content behind a paywall which will offered as a bundle service for customers. The subscription service would take Apple into a potentially profitable segment, which is set to boom over the coming years. However, this cannot be tied exclusively to Apple products and would have to demonstrate openness.

The last few months have shown that Apple is not immune to global trends and the need to evolve as a business is overdue. The reason companies like Google and Amazon never report revenue dips like this is they are constantly searching for the next idea. Apple might have been slow to react, but there is some progress being made. It just needs to be made quicker.

ZTE loses another billion bucks but expects a profit in Q3

ZTE has, for some reason, decided to report earnings for the nine months ending 30 September 2018 and while they’re not good, they could be worse.

The numbers can essentially be broken down into historical ones for the first half of the year and forecasted ones for Q3. ZTE lost 6.8 billion RMB in H1 2018, which is around $1 billion. Meanwhile it expects a profit somewhere between not much and a billion RMB for Q3, which is presumably why it has served up the numbers in this way – to sugar the big loss with the promise of imminent profit.

In terms of actual trading ZTE seems amazingly to have broken even as it blames the loss largely on the billion dollar fine it had to pay as one of the many conditions attached to it being allowed to trade with the US again. For the first six months of 2017 ZTE managed a profit of 2.3 billion RMB, which is around a third of a billion bucks.

Here’s what the ZTE announcement had to say: “The substantial decrease in results for the period from January to September 2018 compared to the same period last year was mainly attributable to: (1) the USD1 billion penalty mentioned in the “INSIDE INFORMATION ANNOUNCEMENT AND RESUMPTION OF TRADING” published by the Company on 12 June 2018; (2) operating losses and provision for losses resulting from the suspension of the major operating activities of the Company as referred in “INSIDE INFORMATION ANNOUNCEMENT” published by the Company on 9 May 2018.”

The second table below shows ZTE’s revenue mix by business unit and geography for the first half of the year. It’s interesting to note that one of the main reasons ZTE has been able to maintain a decent amount of revenue during its struggles seems to be government work within China. While you can’t blame the Chinese state for trying to help ZTE out during its troubles, this sort of thing won’t do much to allay the fears of Western governments concerned about letting Chinese kit vendors into their telecoms networks.

ZTE 1H numbers 1

ZTE 1H numbers 2

Singtel throws out a mixed bag for its latest quarterly results

Revenues up and profits down. Some regions did well and some did bad. The consumer business declined and Digital Life jumped up. A real mixed bag for Singtel.

Group revenues were reported at roughly $3.5 billion, a year-on-year increase of 5.6%, while profits for the quarter stood at $668 million, a decline of 9%. The domestic market demonstrated a slight decline while the Australian business posted its highest ever quarterly postpaid customer growth, but the regional businesses didn’t really pack a punch. On a positive note, the digital business units are performing well and the team is actually spending money on the network.

“We see our investments in network infrastructure and spectrum as critical to our future growth and longer term returns in this digital world,” said Chua Sock Koong, Singtel Group CEO. “Already, our transformation strategy is delivering with digital and ICT services accounting for 23% of our revenue this quarter.

“In our core business, the digitalisation of our services across the Group has enabled us to deliver better customer experience and manage costs. The Australia business, particularly mobile, drove profitable growth. We will strive to provide more value to our customers by anticipating their needs and staying ahead of the competition.”

Looking at the regional businesses, Singtel’s share in Bharti Airtel might be causing a few headaches. It was only a couple of days ago the team announced it was increasing its stake to 39.5% and the African business does seem to be repaying this faith. Unfortunately, heating competition in India, where the majority of the business is, is continuing to weigh heavy on the market incumbent.

Elsewhere, Telkomsel’s earnings fell in Indonesia, while Globe’s earnings in the Philippines were affected by higher depreciation and finance costs on network investments. Not exactly living the dream.

On the more positive side of things, Group Digital Life revenue jumped 106% as the content and technology business is proving a smart bet. A real mixed bag from the Singtel team.

T-Mobile US continues march with another 891k postpaid phone subs

Every quarter the industry sits back and wonders how long the Uncarrier momentum will continue and every quarter the magenta army marches on. This quarter saw 891,000 net additions of postpaid phone subscribers.

This number might sound familiar, but that is because T-Mobile US decided to purposely leak the gains a couple of weeks ago, but now it is official as the company reports its quarterly earnings. This quarter saw service revenues up 7.1% to $7.8 billion, total revenues up 5.1% to $10.8 billion and net income of $2.7 billion.

Over the course of 2017, the numbers are equally as impressive. A 8.3% year-on-year increase to $30.2 billion over the 12 months for service revenues, while total revenues were up 8.3% to $40.6 billion and net income stood at $4.5 billion.

“Wow – what a way to cap off 2017! Record financial results across the board and over 5 million customers added for the fourth year in a row,” said John Legere, CEO of T-Mobile. “We made incredible progress in 2017 building out our network and retail footprint to set ourselves up for future growth. Our business is clearly firing on all cylinders and our strong guidance for 2018 shows that we have no plans of letting up!”

Now onto the customer numbers. Over the course of the fourth quarter, the team saw 1.9 million total net additions and 891,000 branded postpaid phone net additions. Compared to the rest of the industry you can see why Legere is so happy with himself. Over the same three months, Verizon acquired 431,000, AT&T brought in 329,000 and Sprint 184,000. T-Mobile US signed up 5.7 million customers across 2017, bringing the total to 72.5 million at the end of the year.

The Uncarrier strategy has been squeezed as tightly as possible over the last 12 months, though the team are confident of this trend continuing as well. Forecasts put the number of net additions at 2-3 million over 2018, though it is also worth noting that T-Mobile estimates are usually conservative.

While quirky advertising campaigns and a charismatic boss will certainly get you noticed there also has to be some substance to the proposition. This is another area where T-Mobile doesn’t seem to disappoint either. A couple of weeks ago, Opensignal released its ‘State of Mobile Networks: USA’ report for January with T-Mobile almost taking a clean sweep of the awards for network performance.

It would appear the only thing which will be able to stop this momentum over the next couple of quarters will be the 5G rollout. T-Mobile US has been preaching constantly about its 600 MHz spectrum holdings and its ambitions to be the first nationwide 5G network. T-Mobile doesn’t have to be the first to the 5G nationwide podium to continue this momentum, but it does need to keep up the strong network performance.

A nationwide network is all well and good for advertising purposes, but customers will be happy with 5G where they are; Legere has to make sure his ambition to cover the entire of the US doesn’t come at the cost of solid performance in the places that matter; where the majority of his customers are. The T-Mobile 4G network does not cover every single customer as it stands, but the ones it does serve it serves well. That is the success of the T-Mobile charge over the last couple of years, hopefully this lesson will be carried into 5G and executives don’t simply focus on the holy grail of nationwide coverage.

Telenor tightens the purse strings

The team claim to have shaved 1 billion kroner (roughly €105 million) of fat across the business, but it doesn’t want to stop there.

For some it has been a bit touch and go, but Telenor has seemingly pulled a whopper out of the bag. Quarterly figures which demonstrate a profit and beat market expectations. The Norwegians are confident enough to stamp the foot down on full-year guidance; the telco version of a mic drop.

“So far this year, our team has achieved cost savings of 1 billion kroner, implying that our target for 2017 has already been met and further efficiency gains should be expected going forward,” said CEO Sigve Brekke.

“The solid results, together with the proceeds from the completion of the VEON sell-down, give us a free cash flow of 9.4 billion kroner for the quarter.”

Efficiency is the name and digital transformation is the game. 11 of the 13 business units are delivering lower year-on-year OPEX figures and the next focus is on digitalising the core. The team claim this will deliver a foundation for growth, but first and foremost it will save more money. Let’s hope the team are focusing too much on saving. If it comes at the detriment of searching for new ideas, this might not be the best ambition to harbour for the long-term.

Lean and mean is all well and good, but you have to look externally for new revenues to survive in this cut-throat world. You have to wonder when the penny-pinching exercise might start to hurt a bit too much. After all, you have to spend money to make money, and sometimes that means not getting something right. How would failure be viewed in this environment of efficiency and productivity?

What might be interesting is how much is cut away over the next three months. Brekke couldn’t be drawn into any targets for the next quarter, but the lead into the Christmas period is not exactly a perfect time to be trimming the budgets. Consumers will be looking to spend, and seeing as the team has already cut back on TV and radio advertising campaigns, there will have to be an interesting balance struck. Too much efficiency and all of a sudden the profile and visibility of the brand suffers. That would not be good news.

The team is confident of the current strategy however. The emerging Asia portfolio, both in the Bangladesh and in Pakistan, are operating on reduced costs, but offering good returns in terms of postpaid subscribers. The claim is there is also demand in the Nordic markets as well, where the team is capitalizing on the ever-growing appetite for data. Whether Telenor can continue to ride the rough waves on a stripped back ship remains to be seen, but CFO Jorgen Arentz Rostrup is confident.

“We see that there are revenue potentials in this markets if we done it right and 3% organic or 2% growth on the call revenues, it’s something we are happy with but this goes up and down dependent on the competitive environment in the various markets,” said Rostrup.

One ominous sign which might be worth paying attention to is the decline in revenues. For this quarter, Telenor managed to bring in 30.735 billion kroner (roughly €3.24 billion) compared to 31.249 billion kroner (€3.29 billion) during the same quarter of 2016. It’s not an earth shattering decline for the moment, but let’s see how big the gap is after a couple more quarters of cost cutting.

Profitability might be improving, but if revenues continue to head in the same direction, the business will only head in one direction.

Quarterly earnings round-up – AT&T, AMD, Juniper and America Movil

AT&T misplaces quite a lot of customers, AMD warns of a poor Q4, Juniper profitability slides and America Movil feels impact of natural disasters.

AT&T needs to figure out the TV business

Looking at the positives, AT&T’s DirecTV Now proposition, its answer to the cord-cutting trend, brought in 296,000 net adds over the quarter, the most successful period to date, though this number was dwarfed by the 385,000 traditional pay-TV subs who made their way to the exit.

The team warned us in a SEC filing last week this might be the case, but it is now official. The cost of subscriptions are smaller and the number of subscribers are getting smaller as well. The TV space is not treating AT&T as nicely as it had hoped.

Over the course of the third quarter, AT&T brought in total revenues of $39.7 billion (compared to $40.9 billion in the same quarter of 2016) and net income attributable to AT&T totalled $3 billion (compared to $3.3 billion in 2016). The top-line figures are not ideal, though this has primarily been blamed on legacy voice and data services.

“We continued to operate our business efficiently in the quarter,” said CEO Randall Stephenson. “At a time of transformation in our wireless and video businesses, as well as investment in growth opportunities, we’re able to maintain our full-year guidance.”

AMD returns to profit but warns of shaky Q4

Semiconductor business AMD might have put a smile on investors faces by reporting a profit in Q3, but warnings of a weaker Q4 saw share price drop 10% in afterhours trading.

The Ryzen and Epyc series processors, which we both launched earlier this year, proved to be a strong success for the team, as operating profit was reported for the first time in three years. Bringing in $1.64 billion in total revenues, an increase of 26% from 12 months ago, is certainly a positive sign, and so is net income of $71 million. The latter figure actually compares to a loss of $406 million in Q3 2016, so this is certainly heading in the right direction.

“Strong customer adoption of our new high-performance products drove significant revenue growth and improved financial results from a year ago,” said. Lisa Su, AMD CEO. “Our third quarter new product introductions and financial execution mark another important milestone as we establish AMD as a premier growth company in the technology industry.”

Revenues for the quarter were up 34% sequentially, but it appears this isn’t going to be a lasting trend. AMD predicts a 15% decrease in revenues for the next three months, though this can be put down to some levelling off of cryptocurrency demand for GPUs, while seasonally the next quarter is the weakest for some areas of the semiconductor business. This explanation was not enough to save the AMD share price however.

Juniper slides down the profitability slide

Juniper announced a profit for the quarter, though it has lost ground on the same period in 2016. A decline in share price might indicate disappointment from the market, which has seen Juniper demonstrate year-on-year growth for the first two quarters of the year, but the team wasn’t able to repeat the performance a third time.

Net revenues were $1.257.8 billion, a decrease of 2% year-on-year, while net income stood at $174.4 million, an increase of 1%, but this wasn’t enough to save face.

“While we are disappointed in our third quarter revenue results which were impacted by timing of switching deployments, we have made significant progress on executing on our cloud strategy,” said CEO Rami Rahim.

“Despite lower than anticipated revenue growth impacting third quarter results, we have still been able to manage costs effectively,” said CFO Ken Miller.

To maintain revenues amidst a slight repositioning in the market is not a bad effort by the team, though a forecast of $1.23 billion for the final quarter of the year was seemingly not what the market wanted to hear; Juniper shares fell 6.6% during the afterhours trading period.

America Movil spreadsheet shook by natural disasters

The numbers at America Movil look relatively solid for the third quarter of 2017, but that wasn’t enough to prevent billionaire Carlos Slim’s flagship business slipping into a loss.

Postpaid wireless subscribers grew 6% year-on-year, while the broadband subscriptions increased by 5%, but total revenues declined 2.2% to roughly $12.7 billion, making a loss of roughly $500 million. During the same period of 2016, the team brought in a profit of around $110 million.

That said, it might not be the worst news. Revenues and profits were hit by numerous natural disasters in Mexico, Puerto Rico and the US, while a costly Colombian arbitration panel ruling are unlikely to feature again over the next couple of quarters. Without this legal spat, America Movil said it would have registered a profit.

A loss is never good news, but considering these are individual events, the outlook is certainly a bit more positive. The peso’s depreciation might be something to keep an eye on, but keep your hand away from the red button for the moment.