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.

Nokia shares down as it misses profit expectations

Kit vendor Nokia reported quarterly operating profit 42 percent lower than a year ago in Q2 2018 but reiterated its whole year target, pinning hopes on aggressive 5G rollout.

When the headline of the result release reads “First half 2018 as expected”, it is a sign that there is not much to write home about. Nokia reported quarterly net sales of €5.3 billion, 6 percent down from Q2 2017, while the operating profit, in non-IFRS measures, went down by 42 percent to €334 million, falling short of analyst mean forecast of €373 million. It would have been a €221 million operating loss if the costs related to the Alcatel-Lucent acquisition, goodwill impairment charges, intangible asset amortization, etc, were included. Share price fell by more than 7 percent by the time of writing, having recovered from a 9 percent drop earlier.

“Business and regional mix continued to have some impact on gross margin,” said Nokia CEO Rajeev Suri. The main year-on-year drops in its Networks business took place in Asia Pacific and Greater China. But Nokia maintained that it is still on track to achieve its full year targets, believing the rollout of 5G in key markets would come to the rescue. “Our view about the acceleration of 5G has not changed and we continue to believe that Nokia is well-positioned for the coming technology cycle given the strength of our end-to-end portfolio. Our deal win rate is very good, with significant recent successes in the key early 5G markets of the United States and China,” said Suri.

Nokia may be right that 5G is going to start to be rolled out in the US and in Asia later this year, but its success is not guaranteed. Although the Chinese vendors Huawei and ZTE, formidable competitors globally, have had their fortunes curtailed in the US market, Nokia is facing stiff competition from its northern European rival Ericsson. Nokia’s strategy to attack selected verticals in 5G is a smart move, to diversify its client base to go beyond telecom operators.

Another Nokia strategy to bear fruit is its high investment in R&D over the years. One bright point that stood out in the release was Nokia Technologies, the unit tasked to license Nokia’s IPR and brand. With less than 7 percent of the total net sales, it generated over 87 percent of the company’s operating profit, up by 27 percent over Q2 2017. You can read further analysis of Nokia’s numbers at Light Reading here, and here are they are in a table.

Nokia Q2 2018 table

IBM gets currency favours as modest growth continues

IBM has reported a second-consecutive quarter of yearly growth with its Strategic Imperatives outperforming declining legacy units once again, with a little bit of help from currency fluctuations.

Looking at the top-line figures, the business is heading in the right direction. Few would complain with another quarter of year-on-year growth, reversing five years of decline for a second-consecutive quarter, but when you dig a little deeper perhaps all is not as rosy as Big Blue executives would have you believe.

Total revenues were recorded at $19.1 billion, up 5% year-on-year. The cognitive solutions unit brought in $4.3 billion, up 6% year-on-year (2% when adjusted for constant currencies), Global Business Services had revenues of $4.2 billion, up 4% (down 1% when adjusted), Technology Services & Cloud Platforms accounted for $8.6 billion, up 5% (down 1% when adjusted), Systems made $1.5 billion, up 8% (4% when adjusted), while Global Financing had revenues of $405 million, which was flat year-on-year growth (down 4% when adjusted).

In each of these business units, where relevant, the strategic imperatives unit demonstrated growth which outperformed the group on the whole, but without the assistance of fluctuating currencies the picture would not have been anywhere near as pleasant. The future-proofed aspects of the Big Blue machine are outweighing the negative from the legacy business unit, however after five years of finding itself, some in the market would have been hoping the impact might have been a bit more substantial.

Last quarter, the first which IBM turned around the year-on-year decline, offered a glimpse of potential for IBM. It might be too early to expect great things, but the potential has been there for what seems like years now. Executives have been promising the strategic imperatives would save Big Blue, and there have been gradual improvements, but gradual improvements cannot be seen as satisfactory anymore, not when the rest of the industry is plundering cloud golds.

IBM would consider itself one of the world’s leading IT companies, certainly ahead of the curve, but these figures do not add up. Gartner forecasts global IT spend will increase by 6.2% across the next 12 months, with enterprise software spending is forecast to experience the highest growth in 2018 with an 11.1% and IT services expecting a 7.4% boost. These forecasts could act as a good average for the industry on the whole, the better performers growing above and the lesser ones below it. IBM is currently below it.

When compared to competitors the picture is also a bit gloomier. Consultancy rival Accenture grew 15% in the last quarter (though this is down to 10% when adjusted for constant currencies), HPE, which competes with IBM in the storage space, was up 11% year-on-year, while cloud competitor AWS demonstrated a 45% boost in revenues. Microsoft is a company which is a good comparison for IBM considering it has also recently redefined the direction of the business, demonstrated 12% growth in its most recent financial results. This 12% also includes the Microsoft legacy business which is weighing it down heavily.

IBM is heading the right direction, but at a slower pace than everyone else. The firm might want to reclaim its lofty spot at the top of the technology world, but at this rate it will end up being relegated to the ‘also ran’ category.

O2 plugs 5G but will it be more false promises?

O2 might be lagging behind when it comes to 4G performance, but its hoping to get ahead of the pack with the launch of a 5G test bed at The O2 in North Greenwich later this year.

Earlier this week RootMetrics condemned O2’s performance over the UK, ranking it as the worst of the four major players in the UK, but with 5G revolution just around the corner there is an opportunity to wipe the slate clean and wow customers. The launch of the 5G test bed will aim to put the technology in ‘the hands of the British public’ using the popular music and sports venue as a showroom to boast about 5G capabilities.

“The arrival of 5G technology, and the range of unprecedented benefits it will bring, will play a key role in keeping our society and the British economy moving for years to come,” said Mark Evans, CEO of O2.

“That’s why we are delighted to announce our plans to launch a 5G test bed at The O2 later this year. At O2, we are obsessive about always delivering for our customers, and this test bed is a further example of our pioneering attitude to putting our customers first and backing the importance of mobile for Britain’s future.”

Should the team be able to nail the 5G experience at the O2, it could prove to be a very good move. The O2 is one of the country’s most popular entertainment venues hosting a variety of events including the ATP World Tour Finals in tennis, Def Leppard and Professor Noel Fitzpatrick, ‘The Supervet’. Considering the number of visitors the venue brings in each year, it could work as a very effective shop window for the brand.

The test bed will be delivered using Multi-access Edge Computing (MEC) technology, a term which is set to become very prominent over the next 12 months, configured for virtualisation of core 5G network technologies. The venue will partly be used to stress test new technologies, but also usecases ahead of a wider scale launch over the coming years.

O2 might be looking to give a better showing in the 5G world than it is currently doing in the 4G one, but that doesn’t seem to be having a massive negative impact on the business overall in the UK. Over the last 12 months, the business collected total revenues of £5.728 billion, a year-on-year increase of 2.2%, with mobile service revenues up 1% and net customer additional standing at 174,000. The number of net additions increases to 266,000 when you add in M2M.

Perhaps a reason for the poor network performance is the traffic. Aside from having 25 million customers, 12.9 million of which are using 4G, O2 also has MVNO deals with Tesco Mobile, Sky Mobile and Lycamobile. In total, 32.2 million people are using the network, with the team claiming it is the biggest UK mobile network carrier. But in all fairness to O2, it is spending money on the network to improve the performance.

Over the final quarter, £198 million was spent on improving performance and coverage, while the total across the year was £724 million. Over the final quarter of the year, EE spent £122 million by comparison. That said, Orange spent €7.209 billion. Admittedly, Orange is in a broader number of markets (fixed, wireless etc.) and regions, but as a percentage, CAPEX takes 12.6% of total revenues at O2 in the UK while it stands at 17.5% across the Orange group. Orange is looking like one of the strongest telcos in Europe because it is doing more to future-proof its network, the CAPEX numbers demonstrate this very effectively.

These quarterly results suggest O2 is in a decent position to tackle the 5G euphoria, but let’s not get too carried away. Telcos are generally still acting too conservatively when it comes to network investment. The 5G riches will be reserved for the bold and as D-Day approaches some telcos are starting to look like startled deer.