The Great Debate UK
from Breakingviews:
Apple takes another bite out of Nokia
Apple has taken another bite out of Nokia. As customers stampeded for the new iPhone, the Finnish cellphone giant warned of disappointing sales and operating margins. It lost another 9.7 percent, or about $3.5 billion, of its market capitalization on Wednesday. Nokia is increasingly at risk of becoming just a commoditized, low-margin manufacturer.
Nokia pinned the blame for its lower expectations on several causes: competition in high-end phones; the weak euro increasing the cost of goods sold; and a shift in product mix to low-margin devices. But it is smartphone competition that is really vexing the Finns.
In electronics, the highest margins are typically found in bleeding-edge products. Customers are willing to pay a premium for the shiniest devices, while competition is fiercer in more easily produced, lower-end ones. Nokia is losing this battle. While it appears to be slashing prices to keep market share, Apple's customers are whining they can't get their hands on the new iPhone fast enough.
The dichotomy in margins is clear. Nokia says its devices and services unit will be lucky to get 11 percent this year. Largely thanks to the iPhone, it seems, Apple should achieve about 30 percent overall.
Nokia has two hopes. First, it still controls about a third of the global market for handsets. Economies of scale mean it can still squeeze out a profit even on extremely cheap devices. Second, Nokia is increasingly bundling services such as email and music into phones, as well as introducing a better operating system later this year. Success would mean Nokia's margins are currently near bottom.
Yet history suggests margins could go lower still. Take electronics makers such as Sony or Toshiba. While their brands still have a quality reputation, selling largely undifferentiated PCs, televisions and MP3 players isn't a very profitable business due to intense competition. Operating margins often come in below 5 percent despite continued attempts to restructure. Nokia needs to find an answer to Apple soon if it wants to avoid turning Japanese.
Are mobile networks at risk of a meltdown?
- Steve Nicholson, CEO at The Cloud. -
Five years ago the thought that we could be on the move accessing applications such as You Tube or Facebook, or watching TV or listening to music using our mobile phones was no more than a dream – today it’s a reality.
If we take a step back and assess the journey of the mobile phone over the past few years it has been nothing short of epic. It has progressed from a piece of technology for the modern business person to a must-have item.
A mobile phone is no longer just for making calls or for sending texts. Apple, Google and traditional stalwarts of the mobile industry like Nokia are increasingly adding sophistication and functionality that turns our phones into multi-media entertainment devices – capable of watching TV, listening to streamed music, downloading films and even playing high quality interactive games.
The majority of TV broadcasters are making their TV programmes available via the internet and their iPlayers – thus starting the process of enabling people to watch TV using their mobile phones.
According to both Facebook and YouTube we are viewing over one billion video clips on You Tube each day and over 2.5 billion photos via Facebook each month – with a clear and increasing trend to do so using our mobile phones.
There are many more examples that culminate in a massive surge in our collective demand for bandwidth hungry Internet services that are slowly beginning to outstrip the available capacity on traditional mobile networks.
from Commentaries:
Humbled giants eye business phone market
LONDON, Aug 13 (Reuters) - Once they were warriors battling one another on the digital battlefield. Nowadays, Microsoft and Nokia are worriers, huddling together for comfort.
The world's top phone and software companies need each other to compete with Apple, Google and Blackberry-maker Research in Motion (RIM), whose products increasingly define what users expect from phones and charge premium prices in consequence.
In the market for so-called "smartphones", Deutsche Bank estimates Apple and RIM now take home more than half of all profits, despite producing less than a third of high-end mobile phones. Nokia held a 45 percent share of the smartphone market in June, according to Gartner Inc. (Table 2 in Gartner release)
The news this week that Nokia will feature Microsoft's office software -- features such as Word and Excel -- on phones aimed at business users is symbolic of what is possible rather than significant in itself. It fell short of predictions in the gadget trade press that Nokia might introduce phones running on Microsoft's own Windows Mobile software.
But that doesn't mean their collaboration should be dismissed. There's more to this budding relationship than meets the eye.
First and foremost, Microsoft and Nokia say they are taking on the Blackberry email-phone, a must have among corporate professionals. So far the they haven't done very much, for all the big talk. But they have pledged to make Microsoft Outlook work smoothly on Nokia phones.
This is crucial in overcoming Blackberry's key advantage -- the underlying software that companies rely on to securely manage corporate e-mail.
Nice article, Eric. Also in terms of what it elegantly understates – that nobody in the lucrative U.S. phone market is remotely satisfied with their phones or the cost of ancillary services the subscriber has to come up with.
There’s a lot of room for growth, if somebody would just listen to what the customer wants and deliver something like that instead of slowly bleeding users to death with costly add-ons and phony rebates instead of decent service at a fair price on a not-too ugly handheld device series.
Apple’s iPhone is a promiscuous lifestyle product unhappily married to the ogres of AT&T while flirting with the enterprise user market. Microsoft has Windows and Outhouse to contend with, tripping over its own necrotic brand software in the process of whatever they might try to do next. The Windows decal on any phone is a deterrent to buying it, at this point. I mean, what size of chip would one really need to store all the viruses and spam you’d be getting if one went down the MS route? That one hasn’t been invented yet.
At times like these, one might expect your last sentence to ring true with the makers and sellers of such devices. Hopefully, they’ll get the message soon.
from Commentaries:
Don’t read too much into Intel’s success: Eric Auchard
By Eric Auchard
LONDON (Reuters) - Intel Corp has cheered up investors by once again making forecasts about its financial performance. The trouble with reading too much into its rebound, however, is that this is largely due to productivity gains of its own making, rather than a broader awakening of demand.
To be sure, Intel's revenue, profit and margins surged past all published analyst expectations for the second quarter. Partly, this was merely the "snapback" that occurred after Intel throttled back production to as low as 25 percent of factory capacity in the first quarter, amid a glut of unsold chips and shriveling demand.
Things got so bad that it quit commenting on its outlook for the first two quarters of 2009.
The bigger news was its answer to the question of what was happening in the second half: Third-quarter margins should improve to around 53 percent on revenue around $8.5 billion, and could move up toward historic high levels by year-end. The comments sent Intel shares up as much as eight percent and sparked broad-based buying in technology shares around the globe.
However, there is little here to bolster confidence in other bellwethers of the technology sector reporting this week. Intel is benefiting from healthy demand in China and -- to a lesser extent -- the United States, among consumers rather than businesses. But these are not swing factors for the likes of Nokia, IBM or Google.
very good analysis, demand in laptops and netbooks is still good…though it seems that the markets are looking for higher levels and starve for good news to support some trading
Costas – Equity Analyst
