Up Front - Tale of 3 Qs
Three wireless companies. Three quarterly results.
In the coming months, these three companies will experience the recession
in three different, not equally painful ways.
With a U.S. recession knocking at the door and global economic stability in question, we are in for a bumpy ride ahead. However, different companies will experience the oncoming recession in different ways. The three companies I am looking at are Apple, Motorola and Sprint, and each exemplifies the different effects of the economic belt-tightening.
Of course, Apple is coming off of its best quarter ever, according to CEO Steve Jobs. The lithe company seems to be firing on all cylinders as sales of Macs and iPods are up, and sales of the iPhone are humming along, at least in the United States.
I confess to being somewhat razzle-dazzled by Apple’s Q4 results. It has been too long since I read such a glowing performance report for any company in this space. But that sheen may not last for long. The tech company’s CFO, Peter Oppenheimer, predicted a much slower Q1 2008, saying the company anticipates per-share earnings of 94 cents on revenues of $6.8 billion in the first three months of 2008. Reading the economic tea leaves, Oppenheimer apparently expects the U.S. recession to bite into profits. After all, the premium-priced iPhone could see diminished U.S. sales in 2008 if the recession hits consumers’ wallets hard. Sales in Europe aren’t quite as strong so they wouldn’t likely help out if U.S. sales flag.
Although these conservative estimates don’t conjure impending doom for Apple, Carl Gressum, Ovum’s senior analyst, thinks a recession could spell problems because Apple has been riding the wave of an economic boom. “If this comes to a halt,
so could Apple,” he said.
Virtually any company would like to be in Apple’s shoes right now as the economy stares into the jaws of a recession. Even though the predicted Q1 2008 performance would be half that of the company’s “best quarter,” it would still post respectable figures, and a performance that many other wireless companies can only dream about.
Across the country, the gloom continues to hover over Schaumburg, Ill.-based Motorola. Although some parts of the company showed improved quarterly performance, the handset division continued to dwell in the muck.
Incoming CEO Greg Brown said he expects Motorola to lose further handset market share in Q1 2008. However, he predicts the portfolio will be more robust in 2009.
According to Ovum’s Mobile Director, Martin Garner, Motorola has quietly changed tack. Rather than talking up refreshes of existing products, the company is now working on new software and hardware platforms and that these will enable a whole new portfolio. A new deal with Qualcomm for 3G chipsets is a key part of this strategy. The first products from this approach will ship in 2008, but the portfolio will only be robust in 2009.
Interestingly, for Motorola, this could be the best time for a recession. The company already has predicted that 2008 will be a wash, and pointed to 2009 as its comeback year. A recession in 2008 likely will hit most handset makers equally. This takes the performance spotlight off the Moto crew for a while, at least until it is ready to unveil its new products later this year.
Gloominess doesn’t even begin to account for Sprint’s quarterly results. They looked downright deadly.
In what is supposed to be most operators’ best quarters, Sprint had the red-faced task of admitting huge losses. Although the operator reported a net gain of 500,000 subscribers through wholesale channels, growth of 256,000 Boost Unlimited users and net additions of 20,000 subscribers within affiliate channels, those gains were offset by net losses of 683,000 post-paid subscribers and 202,000 pre-paid users. Closing the year, Sprint said it had 53.8 million mobile subscribers, including 40.8 million post-paid, 4.1 million traditional pre-paid, 500,000 Boost Unlimited, 7.7 million wholesale and 850,000 subscribers through affiliates.
In response, Sprint said it would cut 4,000 jobs (about 6.5% of its workforce), eliminate at least 1,600 contractor positions and take other cost-cutting steps to streamline the company’s struggling operations, including closing 125 of its 1,400 retail stores. Sprint’s stock plunged more than 25% to $8.62 per share on the news. This was the stock’s lowest point in almost five years.
Although newly installed CEO Dan Hesse is aggressively pursuing salvage and cleanup efforts, he faces the double-trouble task of trying to make gains during a recession. Although his proposed cuts are expected to produce some $700 to $800 million in savings, those contributions will become evident much slower thanks to the overall economic climate.
Sadly, I think it could be five years before Sprint will see the necessary bounceback to become competitive again. But that’s a long time in wireless years. And the rest of the wireless world and its rivals won’t be standing still.