Xiaomi the difference: Chinese smart device maker vows to disrupt UK market

Xiaomi launched Mi 8 Pro, the first time it has unveiled new products outside of Greater China, a sign of its ambition to expand in more mature markets.

At a Hollywoodian event (as almost all smartphone launches are nowadays) in Barbican Centre on Thursday, Xiaomi became the latest Chinese smartphone maker to introduce their latest products in London, following recent launches by Huawei and OnePlus. The company unveiled Mi 8 Pro, an upgrade version of its Mi 8 model launched earlier in China.

After registering impressive growth in India and other markets in Asia, as well as consolidating its position in China, Xiaomi, like some other Chinese brands, is eyeing the mature markets for new growth. Western Europe is an attractive option as the market is not flooded with hundreds of smartphone brands as in India and China, and there is a sizeable open market that is easier for new brands to set a foot in instead of having to crack the carrier market as in the US.

“Today we witness a new chapter in Xiaomi’s global expansion journey, underpinned by our global ambitions. We are thrilled to make great strides by announcing our arrival in the UK,” said Wang Xiang, Senior Vice President of Xiaomi Corporation.” By bringing a range of our amazing products at honest pricing we want to offer more choices and let everyone in the UK enjoy a connected simple life through our innovative technology.”

The newly launched Mi 8Pro and its predecessor share exactly the same hardware and software, powered by Qualcomm’s Snapdragon 845 CPU, 6.21” AMOLED display (yes, need to go to the second decimal digit), 8GB RAM and 128GB onboard memory,12MP+12MP AI dual camera on the back, and 20MP selfie camera, Dual 4G SIM, Dual frequency GPS (to minimise coverage dead zones, like near tall buildings), infra-red facial recognition (to unlock with facial ID in the dark).

On the software side, Xiaomi overlayed a light MIUI skin on top of the latest Android release, plus a couple of its own preloaded apps (browser, messaging, etc.). Presumably the main point is not how many people will use its apps but rather to gather usage data. The Xiaomi executives did stress the number of active MIUI users in the world and in Europe (its products are already being sold in Spain, Italy, and France). It has also preloaded a MS Office suite, one of the first offers Microsoft made to the Android ecosystem back in 2016.

Under the spotlight was its photography technologies including the so-called “4-in-1” super-pixel, that is combining 4 pixels into 1 to take in more light, therefore to capture more details even in low light environment. Also being boasted is the speed the phone focuses (using the so-called Double Pixel Auto Focus, DPAF, technology, demonstrated in a video as faster than both the iPhone XS and the Samsung S9+). Nowadays, no presentation of smartphone cameras is complete without talking AI, and Xiaomi is no exception. The main talking point here was on the analytics capability to separate foreground from background, making post-shot processing easier.

The only genuine upgrade the Mi 8 Pro offers over the Mi 8 looks to be the fingerprint reader. It is at the back of the phone on the Mi 8, but is upgraded to on-screen reader on the Mi 8 Pro.

All the bells and whistles aside, what Xiaomi most wanted is to stand out in two areas: design and price. It is clearly successful in one, maybe less so in the other. Xiaomi claimed to go down the minimalist route for its design, claiming that it was inspired by the exhibits at the Helsinki Design Museum. It even got the director of the museum to go on video to endorse an earlier product. But what it got to show its innovative design on the new product is a transparent back-cover where the upper part of the inside of the phone is visible. But to those of us old enough to remember the 1990s, this is more a retro than inno. Swatch’s Skeleton series, anyone?

Xiaomi Mi 8 Pro_Front resized Xiaomi Mi 8 Pro_back resized

But when it comes to pricing the strategy is much bolder and more likely to succeed. Xiaomi broke through in the device market in China in 2011 by offering smartphones with decent specs at a very affordable price. This strategy has carried them through ups and downs all the way to London. The Mi 8 Pro will be retailed at £499.99. This is vastly lower than other smartphones with comparable hardware specs. Xiaomi is clearly targeted at the so-called “affordable premium” segment.

On the distribution side, Xiaomi started in China exclusively using online distribution channels. There have been followers with mixed success, but at the same Xiaomi is also diversifying to brick-and-mortar retail outlets in markets like India, Malaysia. Xiaomi also aims at a mixed channel strategy in the UK, it opens its own online shopping channel, getting online and offline channel partners (Amazon, Currys, Carphone Warehouse, Argo, John Lewis, etc.) on board, as well as opening its own authorised retailer in southwest London on 18 November. It also tied a partnership with 3UK, though Xiaomi executives would not tell more details of the terms or the packages 3 plans to offer.

Also introduced to the UK market at the event are a smart wristband (Mi Band 3, main feature being its display larger than previous generations) and an electric scooter, to deliver the “ecosystem” story—the executive stressed Xiaomi is more than a smartphone company. On display in the experience area were also smart speakers, set-top boxes, smart kettle, and smart scale.

Our overall feeling is that, the Mi 8 Pro smartphone is decent but not fantastic. However the price point Xiaomi sets it on is disruptive. This strategy has worked for the company in China and other Asian and European market, taking them to commendable market positions and financial success. It may stand a chance.

Xiaomi event pic2

Culture is holding back operator adoption of open source

If open source is the holy grail for telcos, more than a few of them are getting lost trying to uncover the treasure; but why?

At a panel session featuring STC and Vodafone at Light Reading’s Software Defined Operations and the Autonomous Network event, the operational culture was suggested a significant roadblock, as well as the threat of ROI due to shortened lifecycles and disappearing support.

Starting with the culture side, this is a simple one to explain. The current workforce has not been configured to work with an open source mentality. This is a different way of working, a notable shift away from the status quo of proprietary technologies. Sometimes the process of incorporating open source is an arduous task, where it can be difficult to see the benefits.

When a vendor puts a working product in front of you, as well as a framework for long-term support, it can be tempting to remain in the clutches of the vendor and the dreading lock-in situation. You can almost guarantee the code has been hardened and is scalable. It makes the concept of change seem unappealing Human nature will largely maintain the status quo, even is the alternative might be healthier in the long-run.

The second scary aspect of open source is the idea of ROI. The sheer breadth and depth of open source groups can be overwhelming at times, though open source is only as strong as the on-going support. If code is written, supported for a couple of months and then discarded in favour of something a bit more trendy, telcos will be fearful of investment due to the ROI being difficult to realise.

Open source is a trend which is being embraced on the surface, but we suspect there are still some stubborn employees who are more charmed by the status quo than the advantage of change.

Amazon China staff were reportedly selling-on user data

Amazon is conducting an internal investigation into allegations that its staff in China received bribes from merchants for user data.

According to a report by the Wall Street Journal, staff of the online retailing giant’s China operation received between $80 and more than $2,000 to part internal user and sales data to brokers, who would then re-sell them to merchants who do business on Amazon platform. According to the WSJ report, it was not only Amazon’s internal sales metrics and users’ email addresses that were sold, also on offer was additional services. The staff would help the buyers to delete negative reviews and to re-open banned Amazon accounts.

It is said the malpractice was particularly rampant in Amazon’s office in Shenzhen, the city bordering Hong Kong. It is not the first time China’s online retailers suffered from data security comprise. Back in 2016 over 20 million of Alibaba’s users had their data hacked. Nor is this the first time that Amazon has found itself in the centre of data leaking controversies, but earlier cases were related to its cloud service AWS. So it is astonishing that in the present case, data was not breached by hacking but through blatant criminal transactions. It is not clear how many users have had their data sold.

Amazon released a statement saying “We have zero tolerance for abuse of our systems and if we find bad actors who have engaged in this behaviour, we will take swift action against them, including terminating their selling accounts, deleting reviews, withholding funds, and taking legal action.”

Amazon set up its business in China in 2004 after acquiring a competing online bookshop Joyo with $75 million. It was rebranded Amazon China in 2011.

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

Broadcom buys CA Technologies as a $18.9 billion consolation prize

Broadcom announced it is going to acquire the software company CA Technologies in a $18.9 billion deal, after its proposed takeover of Qualcomm fell apart in March.

This deal gave CA Technologies a 20% premium on the closing price of the last trading day. Boards of both companies have agreed to the deal, though it still needs to gain the approval from the anti-trust authorities in the US, EU and Japan. It will also need to be voted on by all the shareholders, at least nominally.

We do not see any veto on the way from the authorities. CA’s position in the software industry is nowhere close to the criticality of Qualcomm in the chipset industry. The $4.2 billion revenues it made in 2017 would qualify it in the world’s top 20 software companies, while Qualcomm, which made $22.4 billion, was vying for the 4th place with Broadcom and SK Hynix on the table of the world’s largest semiconductor makers (trailing Samsung, Intel, and TSM).

It also lacks the leadership in innovation as Qualcomm. We believe the main concern behind the recommendation from US Committee on Foreign Investment to the President to block the deal was that they worried Broadcom would need to cut cost after the acquisition which would jeopardise Qualcomm’s investment in key R&D activities.

This deal does come as a surprise though. Despite Broadcom’s declared mission to acquire “mission critical technology businesses”, we have difficulty in seeing significant synergy between Broadcom’s chipset design business and CA, which offers cloud-based as well as conventional enterprise-level software. The attraction may lie in the “more than 1,500 patents worldwide” that CA holds.

The all-cash acquisition will be financed by Broadcom’s cash in hand as well as $18 billion debt to be issued. This will appear a small number to compare with the $106 billion it would need to borrow had the Qualcomm deal gone through.

ZTE’s export ban is set to be lifted

The US Commerce Department has signed an agreement with to lift the export ban on ZTE.

In keeping with the style of the current US administration the move was communicated via a tweet.

In practice this will complete the outstanding part of the $1.4 billion penalty agreement ZTE reached with the Department in June, coming on top of the $1 billion it already paid. In addition, the original seven-year export ban will be converted into a ten-year suspended ban, and ZTE will still need to hire an external compliance monitor appointed by the Department.

The price ZTE has paid to get here, in addition to the monetary loss, includes a wholesale change of its Board and its management, the loss of half of its market value, damage to its brand, and a lasting suspicion from its customers. They will look for potential alternative suppliers if they have not already done so.

With the ban lifted, ZTE will be able to resume its global business using American technologies and components, in particular the microchips. This will be good news for companies like Qualcomm, Intel, TI, Broadcom among others, and even better news for the smaller suppliers who have relied more heavily on ZTE. Indirectly, as ZTE is one of the major Android handset makers, lifting the ban will also be a positive to Google.

However, not all is rosy for ZTE yet, especially its fortune in the US market. The FCC named ZTE in its NPRM as one of the suspect vendors whose equipment and services could pose threat to national security, therefore limiting the prospect of ZTE expanding its infrastructure business in the US.

Going further up the political hierarchy, the bi-partisan “National Defence Authorisation Act” passed in the Senate included an amendment aiming to reverse the “goodwill” extended by President Trump to China to save ZTE from death. The bill will be discussed with the House for a comprise version. Chuck Schumer, the Senate Minority Leader, was clearly unhappy with the latest agreement:

With the uncertainties in the FCC and the Congress hanging over its head, and seen against the backdrop of the US-China trade dispute, instead of being the beginning of the end of the ZTE saga, as its lawyer claimed, this agreement is more like the end of the beginning. How the rest of the chapters will pan out remain to be seen. In short term, however, the agreement is a boost to the market. ZTE’s share price rose by 25% on the Hong Kong Stock Exchange.

Nokia inks €1 billion framework agreement with China Mobile

A new agreement, valued at €1 billion ($1.17 billion, £0.88 billion), has been signed that covers the delivery of Nokia products and services to China Mobile throughout 2018.

The signing took place in Berlin during the fifth iteration of the inter-governmental economic forum between Germany and China, starring the German Chancellor Angela Markel and Chinese Premier Li Keqiang. This capped a busy week for Nokia’s business updates with China, during which time it also signed MoUs to set up joint labs with Tencent and China Mobile respectively.

Nokia was already one of the key vendors in China when the first its mobile telecom networks were rolled out there in the late 20th century. However, it was only recently, after it bought Siemens out of their joint-venture, then acquired Alcatel-Lucent including the legendary Bell Labs, did Nokia become a credible end-to-end supplier. In this new agreement Nokia’s supplies to China Mobile will include the full range of equipment and services from access, backbone, transport, to network management.

Mike Wang, President of Nokia Shanghai Bell, which will be the front-end implementation entity with China Mobile, saw this agreement “highly significant”, consolidating “Nokia’s position as a leading provider of next-generation technologies and services in China.” Chinese companies are much more aggressive in rolling out 5G in scale than their Western European counterparts.

New Synchronoss CEO looks to put nightmare year behind it

The appointment of Glenn Lurie – the former head of AT&T Mobility – as CEO is the culmination of yet another strategic overhaul by Synchronoss.

If we gauge a public company’s health by its share price the last 12 months have been a car crash for Synchronoss. As you can see from the Google Finance screen grab below the company has lost 77% of its value over that time which, according to this analysis by Seeking Alpha, is due to a combination of accounting irregularities and the botched acquisition of Intralinks.

Synchronoss Google Finance screen

Synchronoss completed the acquisition of enterprise messaging firm Intralinks for $821 million back at the start of the year and was so pleased with its acquisition that it promptly installed its CEO – Ron Hovespian – as the boss of the whole resulting company. Within three months, however, Hovespian was shown the door, leading to another share plunge.

The rest of the year was spent talking to private equity firm Siris capital, which had presumably noticed how much the share price had fallen and thought it spotted a bargain. The culmination of all this was a deal to sell the newly-acquired Intralinks to Siris for $1 billion as well as an investment of a further $185 million.

Lurie’s appointment, announced late last week, seems also to be positioned as an attempt to draw a line under the misadventure of the past year and give Synchronoss the credibility to sell its latest new strategy. This is focused primarily on its white-label personal cloud business, which already has a number of prominent CSP customers, including BT. Lurie’s extensive experience overseeing the consumer side of a big operator is being framed as ideal for this direction.

“Glenn is a highly accomplished, transformational and well-respected leader with a proven track record of success and innovation in the telecommunications industry,” said Stephen Waldis, Synchronoss Chairman. “Glenn’s knowledge of the wireless and media space, broad industry relationships and operational acumen are second to none, and make him the ideal leader to drive the next chapter of success for Synchronoss.

“I have worked closely with AT&T for many years and have seen firsthand the profound impact Glenn can have on all aspects of a company, especially his ability to launch innovative new businesses and products. Glenn also brings a strong reputation for his people first leadership style and ability to take his teams to the next level of success. Along with the rest of the Synchronoss Board and management team, I am excited to welcome Glenn and look forward to working alongside him as we execute a more focused business strategy that builds upon our footprint and expertise in Cloud, Messaging and Digital Transformation.”

SNCR CEO Glenn Lurie Nov2017 1Telecoms.com spoke to Lurie (pictured) to get his perspective on his new role. He was especially keen to talk up the consumer cloud space, stressing that the increasing amount of digital products and content we all have on a variety of different platforms offers a great opportunity to help with the management of it all. This means not only offering a portal for easy access to your stuff regardless of what device you happen to be using, but also allowing it to be easily shared. Lurie referred to this paradigm as “the agnostic family cloud.”

So the plan seems to be to double-down on the personal cloud space and seek further growth by offering its white-label solutions to other verticals beyond its traditional CSP hunting ground. “We will be much more broad in our products and services as well as who we offer them to,” said Lurie.

In the lexicon of corporate strategy, the opposite of diversification is focus. Synchronoss had a go at diversification over the past year and that seems to have gone badly. There was nothing wrong with its white-label cloud business, however, and Lurie’s appointment is being positioned as a refocus on that. As ever, only time will tell how successful this latest roll of the dice is going to be.

Ericsson manages down expectations in brutally honest Capital Markets Day

The first major update of Ericsson’s cunning plan since CEO Ekholm first unveiled it back in March painted a gloomy short-term picture.

One thing you certainly have to give Ekholm credit for is his bluntness. So many companies make the mistake of trying to placate internal and external stakeholders by setting unrealistically bullish targets. When they inevitably miss these the resulting repercussions are usually far greater than if they’d just been honest in the first place.

Ekholm seems determined not to make this mistake so he sensibly used his company’s Capital Markets Day to serve up all the crappy news in one go. The top line is that trading conditions for this year have been even worse than he feared previously, so as a consequence most of his other targets are being revised downwards.

A headline March target was to reach a sustainable operating margin level of 12% by the end of 2018. Since the 2017 rolling margin is 3% that’s clearly not going to happen, so now Ericsson is aiming for 10% by 2020, with 12% a more vague, long-term target. The sales targets are pretty modest too, with an emphasis on profitability over growth meaning Ericsson is actually forecasting sales declines through to 2020.

The table below breaks this down by group, including the newly-created Digital Services and Managed Services groups. It also seems to be leaving out the Broadcast & Media Services group entirely from its 2020 target, a part of the business Ericsson is increasingly trying to distance itself from.

 

2020 targets and planning assumptions

(see below under heading New financial reporting structure for details on new segment structure)

SEK b. Networks Digital Services Managed Services Other Total
Target 2020 Net sales 128 – 134 42 – 44 20 – 22 3 – 5 190 – 200
Operating margin 1) 15 – 17% Low single digit 4 – 6% Breakeven  >10%
Baseline 2017 Q3 rolling 4Q unaudited and preliminary Net sales 133 – 135 41 – 43 24 – 26 7 – 9 3) 211
Operating margin  2) 13 – 14% -15 to -17% -4 to -6% -57% to -62%
3)
3%

1) Excluding restructuring charges

2) Numbers are excluding restructuring charges and extraordinary items

3) Including Media Solutions and Broadcast & Media Services

Note: All financial targets are based on USD/SEK at 8.20. USD to SEK movements has a direct impact on reported sales and income. If the USD to SEK weakens by -10% it has approximately 5% negative impact on topline and 1 percentage point on operating margin.

 

“Our job and commitment is to rebuild Ericsson to be successful long-term. Near term we will prioritize profitability over growth,” said Ekholm. “Healthy profitability is the base for long-term success and will give us the freedom and resources to invest for the long term.

“We have plans in place for all segments that combined sum up to an operating margin of between 10 – 12% by 2020, but since there are execution risks in all plans and we start from a weaker starting point than originally planned for, we prefer to be cautious and commit to the lower end of the range. Beyond 2020, we will drive continued improvements and capture upsides from innovation and emerging business to reach our ambition of at least 12% operating margin for the Group.”

You can see selected slides from the company’s presentations below. Having told investors not to get their hopes up for the next few years, Ekholm wanted to stress that if they sit tight, Ericsson’s focus on 5G should pay dividends in the long term.

“5G is not just another G,” he insisted. “Even though we are not planning for significant 5G sales before 2020, we are convinced it will create value for our customers in their mobile broadband business, enabling them to manage very high traffic growth.

“But even more important, it has the potential to create new businesses and revenue streams for service providers based on use cases such as industrial applications. With the combination of products and capabilities that we have in Networks and Digital Services combined, we are well positioned to support our customers’ network evolution to 5G.”

In an era dominated by quarter-to-quarter short-termism Ekholm deserves credit for daring to lay it on the line and say ‘this is going to take a while’. But he does seem to have fallen into the old corporate trap of ‘profit now, investment later’. The main problem with this is that when ‘later’ arrives, profit expectations have been heightened such that increased investment is resisted. It’s a delicate balancing act and Ericsson shares were down 3-4% at time of writing.

Ericsson CEO assessment

Ericsson CMD profitability

Ericsson CMD margin

Ericsson CMD targets

Ericsson CMD segments

Ericsson CMD 2020