Communications

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Market analysis

The Communications market witnessed a continuing decline in the first quarter of 2015, in which all the companies tracked reported double-digit sequential decline compared to the previous quarter. The steepest sequential decline was reported by Ericsson, whose revenue fell by 35.3%. On a year-over-year basis, Motorola Solutions witnessed a revenue decline of 32.1%, the highest among Communications companies.

Geographically, growth in Communications was primarily driven by mobile broadband and network equipment installations in China, India and the Middle East. Growth in North America was slow as telecom operators remained focused on cash flow optimization in order to finance major acquisitions and spectrum auctions. Most companies managed to fight slow growth in North America via earlier inorganic expansions. In Europe, the Communications market declined, but was partially offset by good growth seen in Italy and Russia. In contrast, the Latin American Communications market declined, dragged down by poor performance in Brazil. 1, 2

Growth in spending on telecom services in 2015 is expected to shrink by 2.6%, from US$1.61trn in 2014 to US$1.57trn in 2015. 3

Motorola’s US$1.2bn revenue in Q1 2015 saw a year-over-year decline of 32.1% against US$1.8bn in Q1 2014 due to the sale of its Enterprise segment in 2014. On a pro-forma basis, revenue was flat. Although the North American business grew by US$43mn, growth was offset by unfavorable foreign currency fluctuations of US$40mn, primarily within Europe, Africa and Asia-Pacific. The Products segment grew 1% year over year, from US$752mn in Q1 2014 to US$758mn in Q1 2015. On a geographic basis, revenue increased in North America and the Middle East, and declined in Latin America, Europe, Africa and Asia-Pacific.

Ericsson’s revenue in Q1 2015 reached US$6.4bn, a year-over-year decline of 12% against US$7.3bn in Q1 2014 and a quarter-over-quarter decline of 35.3% against US$9.9bn in Q4 2014. However, in terms of its reporting currency, the SEK, revenue witnessed a year-over-year rise of 13% and a quarter-over-quarter decline of 21%. The difference can be attributed to seasonality and a rising USD against the SEK, which greatly reduced earnings expressed in USD. During the quarter, the highest revenue growth was witnessed in Global Services (+17%) and Support Solutions (+11%). The fast pace of 4G deployments in China continued to stimulate earnings. However, revenue was hampered by slow growth in the North American mobile broadband business as operators remained focused on cash flow optimization in order to finance major acquisitions and spectrum auctions. Ericsson also faced cost escalations, with net margins of 2.7% in Q1 2015, compared to 3.6% in Q1 2014 and 6.2% in Q4 2014. Net income of US$174.6mn in Q1 2015 dipped 32.9% against US$260.2mn in Q1 2014 and 71.7% against US$617.4mn in Q4 2014.

Nokia has agreed to buy Alcatel-Lucent in a US$16.6bn (€15.6bn) all-stock deal likely to close in the first half of 2016. It has also initiated a review of strategic options for its HERE business, including a potential divestment. The company’s Q1 2015 revenue totaled US$3.6bn, a year-over-year decline of 1.6% against US$3.7bn in Q1 2014 and a quarter-over-quarter decline of 28.6% against US$5.1bn in Q4 2014. However, in terms of its reporting currency, the EUR, revenue witnessed a year-over-year rise of 20% and a quarter-over-quarter decline of 16%. The year-over-year rise was primarily due to higher revenue in Nokia Networks, Nokia Technologies and HERE. The sequential decline was primarily due to seasonally lower net sales in Nokia Networks and HERE. Nokia Technologies in particular posted a 103% year-over-year rise and a 79% sequential rise in revenue due to intellectual property-related income. Nokia’s net income of US$199.7mn in Q1 2015 jumped 163.4% against US$(314.9)mn in Q1 2014 due to an adjustment of loss from discontinued operations (the Devices & Services business, which was sold off to Microsoft) in Q1 2014. On a pro-forma basis, net income rose 65% year on year in reporting currency.

  1. FierceWireless, April 2015
  2. WirelessWeek, May 2015
  3. Gartner, April 2015

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