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Agere Suffers Hutch Hiccup

The disappointing 3G rollout from Hutchison 3G UK Ltd. has created an earnings headache for Agere Systems Inc. (NYSE: AGR.A), as the chip maker announced this morning that it will miss expectations for the March quarter.

The chain reaction goes like this: Hutchison's 3G moves slowly; NEC Corp. (Nasdaq: NIPNY; Tokyo: 6701) cuts down on 3G cellphone volumes; Agere gets less money from NEC.

Revenues from NEC will drop $50 million from their December levels, to $10 million, Agere officials said. Agere shares closed down 18 cents, at $3.23, on the news.

Agere told analysts its revenues for the March quarter would be between $465 million and $475 million, with earnings between breakeven and 1 cent per share (see Agere Q2 to Fall Short). Analysts had been expecting revenues of $500.7 million and earnings of 1 cent per share, according to Multex.

Analysts don't think this spells any long-term trouble for Agere. "We believe the weakness is related [to] over-ordering at that single customer and is not a sign of weakness in the wireless infrastructure market," writes John Harmon of Needham & Co. in a report today. "We think the bigger news is that the Infrastructure segment is performing well across the board and ahead of expectations, and this segment receives much higher margins."

Indeed, along with the shortfall, Agere said it expects wireline and wireless infrastructure business to grow 10 percent, to about $131 million for the March quarter, rather than the 7 percent officials had previously predicted.

Hutchison's latest 3G setback came in January when a Hong Kong launch met with polite applause rather than a roar of approval. It's becoming something of a habit for the carrier, which had to trim down its subscribership forecasts in November (see Asia's Mixed 3G Blessings and Hutch's Subscriber U-Turn).

Agere already knew about this and warned in January that it could affect earnings. Meanwhile, 3G handset inventories at NEC -- which uses Agere baseband chips in its cell phones -- apparently built up. NEC had expected to sell 1.5 million handsets to Hutchison in the March quarter, according to analyst Jeremy Bunting of Thomas Weisel Partners.

— Craig Matsumoto, Senior Editor, Light Reading

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technonerd 12/5/2012 | 2:13:34 AM
re: Agere Suffers Hutch Hiccup ... then you know it's going to be a big problem ever rolling it out in the United States. "3G" in the U.S., as we all know, is nothing but a few press releases. Sort of like the "Wi-Fi" thing, which has, at best, 10,000 regular users or maybe 20,000.

The problem with "3G," besides the fact that it doesn't really work unless you deploy it in an incredibly dense pattern, is that there really aren't any compelling applications. It's about as "who cares?" as "who cares?" gets.
particle_man 12/5/2012 | 2:13:27 AM
re: Agere Suffers Hutch Hiccup "Sort of like the "Wi-Fi" thing, which has, at best, 10,000 regular users or maybe 20,000"

So where did you get your data for this? It sounds low, but I have zero data points.

I agree on your comment about the applications driving bandwidth. I haven't seen much yet in the way of compelling applications. Maybe MP3 downloads and higher res photo sharing? But these take time to gain widespread usage.

We always overestimate change in the near term, and underestimate it in the longer term.
technonerd 12/5/2012 | 2:13:26 AM
re: Agere Suffers Hutch Hiccup I haven't seen much yet in the way of compelling applications. Maybe MP3 downloads and higher res photo sharing? But these take time to gain widespread usage.
But why mobile? Remember, people will have to pay extra money for these capabilities. I think they'd just as soon do these things on their home broadband connection. O.K., there will be some people without a home broadband connection, but will they be the ones who can afford a mobile connection and all the trimmings? Can this really support a market? I doubt it.
probably 12/5/2012 | 2:13:20 AM
re: Agere Suffers Hutch Hiccup The Hutchison 3G video phone demos I've seen are nothings short of comically poor! No great surprise that it is hurting all the way up the foodchain.
voyeur 12/5/2012 | 2:13:19 AM
re: Agere Suffers Hutch Hiccup Uh, they're not talking about Hutch in HK, but the UK, a much harder proposition. Check with SK to see how 3G mobile works.



For those uncertain, Hong Kong, United Kingdom, and South Korea
technonerd 12/5/2012 | 2:13:16 AM
re: Agere Suffers Hutch Hiccup Uh, they're not talking about Hutch in HK, but the UK, a much harder proposition.
Uh, maybe you should re-read the article.

Hutchison's latest 3G setback came in January when a Hong Kong launch met with polite applause rather than a roar of approval. It's becoming something of a habit for the carrier, which had to trim down its subscribership forecasts in November
materialgirl 12/5/2012 | 2:12:48 AM
re: Agere Suffers Hutch Hiccup The real near-term use for wireless banadwidth is for roaming corporate workers. If you include campus WiFi, I am sure that usage numbers are very high. Corporations are starting to deploy more wireless applications. Perhaps they will use something other than 3G, but latent demand does exist.
technonerd 12/5/2012 | 2:12:02 AM
re: Agere Suffers Hutch Hiccup When is this 3G stuff going to take off, if ever?
Answer: Not in our lifetimes. 3G is a technology that doesn't work, chasing a market that doesn't exist, with applications that no one cares about.
reoptic 12/5/2012 | 2:12:02 AM
re: Agere Suffers Hutch Hiccup When is this 3G stuff going to take off, if ever?
reoptic 12/5/2012 | 2:12:02 AM
re: Agere Suffers Hutch Hiccup 50M from one chip customer is a big, big hit. More there than meets the eye
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