Chaos in the Wireless World
Over the last several days we have seen December quarter results from several players in the wireless realm, including Apple Inc. (Nasdaq: AAPL), Ericsson AB (Nasdaq: ERIC), LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , Nokia Corp. (NYSE: NOK) and Sony Ericsson Mobile Communications . The question is, "Can we draw any conclusions regarding 2009 from what they’ve said?"
Both Ericsson and Nokia supply infrastructure equipment, although Nokia’s wireless infrastructure position is not nearly as strong as Ericsson’s. However, as you’ll see, there were some similarities and differences:
Ericsson was in the process of restructuring its operations to fit the new fiscal environment throughout 2008. Despite a weakening macro-environment, Ericsson's fourth-quarter revenues came in at SEK67 billion, up a whopping 23 percent from last year and 36 percent from last quarter. Some of that was bolstered by the weakening of the Swedish krona, but business was good nonetheless. Pro forma (excluding restructuring charges) operating profit margin declined slightly, driven primarily by losses at the Sony-Ericsson joint venture.
From a geographic perspective, the Asia/Pacific region generated the strongest growth for Ericsson, with revenues up 49 percent annually, driven primarily by India, Japan, and Indonesia. The Central Europe/Middle East/Africa region grew 24 percent year-on-year, but there were no particular standouts. Latin America was up 16 percent, driven heavily by Mexico and Brazil. What was interesting in the commentary about Western Europe (up 5 percent compared to the previous year) and North America (up 13 percent year-on-year) was that it was being driven by the demand for mobile broadband services. Yes, data has arrived! Despite what amounted to a very good quarter for Ericsson, management is not expecting the good times to continue. The company does not give explicit guidance, but they indicated that visibility is limited at best and they are assuming that demand deteriorates in 2009 from 2008 levels.
Nokia Siemens Networks
Nokia Networks is the joint venture between Nokia and Siemens that develops and sells those companies' infrastructure equipment and services. The company has had a tougher time of it as it has rationalized its products/services since the merger. Revenue in the fourth quarter came in at €4.3 billion, which was down 5 percent from last year but up 24 percent in the seasonally stronger December quarter. Despite the difficulties on the top-line, NSN’s restructuring efforts are paying off, with an improved pro forma operating margin of 5.2 percent.
Like Ericsson, NSN experienced solid growth in the Middle East/Africa region (up 14 percent compared to the same quarter in 2007), Asia/Pacific (up 15 percent year-on-year), and Latin America (up 21 percent). However, the company is still experiencing rough sledding on its home turf, with European revenue down 20 percent from the prior year.
Generally speaking, Nokia does not give any type of detailed guidance. However, pertaining to NSN management, it's indicated that it expects the market to contract 5 percent or more in 2009.
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