New-style deals in Australia and Chile
Meanwhile, on the other side of the world, Ericsson has signed the latest in a string of managed services deals. These are vital to its revenue strategy, but this contract, with Australia’s NBN (National Broadband Network) organisation, is focused mainly on fixed wireless and satellite rather than the mobile systems with which the Swedish vendor is so familiar.
The deal, worth as much as Au$300m, is to deliver and support services across regional and rural Australia, extending some existing fixed wireless agreements until 2018 and operating third party ground systems for the Long Term Satellite Solution (LTSS), as well as customer service activation. The NBN non-cellular services are planned to cover households that are not well covered by wireline or LTE broadband.
Ericsson will help the government-owned NBN (created to implement the state national fixed broadband plan) to meet expected peak installation rates of up to 15,000 households per month in rural Australia in 2016, and it will also manage the migration of 42,000 users of the current, interim satellite system to the LTSS.
NBN is charged with bringing fixed broadband to every household, and it says up to 7 per cent of the population will not be accessible with its wireline roll-out. It hired Ericsson in 2011 to build and manage its fixed LTE network.
The contract indicates how next generation networks, especially those targeting rural or emerging markets, will increasingly pull together a variety of available technologies and spectrum bands, including cellular, wireline, Wi-Fi, satellite and fixed wireless – and these will all need to be managed and, in many cases, integrated, an opportunity for managed service providers.
Greg Adcock, NBN’s COO, said: “This agreement will enable greater efficiencies and consistency of network management across both our fixed and satellite ground networks."
Another important area of expansion for Ericsson is the smart city, and its latest contract is with Chilean telco Entel. The two companies have signed an agreement with the government transport agency, Subtrans, to develop tools to optimise the management of public transportation, initially in capital Santiago. In a joint pilot, Ericsson will provide a tool allowing Subtrans to monitor the movement of Entel users in the Transantiago bus and metro system. This data will be used by Subtrans to manage the system's resources in a more efficient way, and to identify areas where improvements are needed to the system.
ALU thrives on China and mobile gear:
While Ericsson casts its net far and wide, Alcatel-Lucent and Nokia are trying to streamline their activities around areas where they have differentiation, and then layer new services and revenue streams on top. So ALU’s Q2 results were accompanied by further layoffs and divestments, but there were also signs of organic growth, even in China.
Its quarterly highlight was better-than-expected performance in wireless equipment, particularly driven by Chinese sales, and somewhat offsetting some disappointments in its crown jewel, the core router business.
CEO Michel Combes said his "Shift Plan" – the last and most promising of a series of turnaround programs at ALU since its troubled merger – was on track and reiterated his goal of achieving positive free cashflow by the end of 2015. The most positive metric for investors was the improved operating margin, up to 4.1 per cent, from 1.3 per cent in the year-ago quarter.
Revenue was up just 0.7 per cent year-on-year to €3.28bn, in line with analyst predictions but well below growth at Ericsson (5 per cent) and Huawei (but better than Nokia’s 8 per cent top line drop). Core operating profit tripled to €136m, well ahead of forecasts, and gross margin rose from 31.2 per cent to 32.6 per cent.
Combes also said he was continuing a key aspect of the Shift Plan, divesting non-core assets, and will seek an IPO of the submarine cable unit in the first half of next year.
The ongoing cost-cutting programme, which has been intensified since Combes took over from predecessor Ben Verwaayen, helped boost the operating margin, as did strong LTE sales in China and the US. But the costs of the restructuring kept ALU firmly in the red, with a net loss of €298m. This was, however, much reduced from the year-ago figure of €885m. ALU has failed to post more than one-off quarterly profits since its creation in 2006, and Combes is addressing the challenge with promises to cut 10,000 jobs and €1bn in costs, as well as to offload a further €1bn in assets.
That will see ALU focusing its business on a narrower range of activities, with converged IP networking and cloud platforms as the main growth engines. Unlike rival Nokia, which is focusing entirely on mobile broadband, ALU has designated mobile-only networks mainly as a cash generator, and is integrating its LTE activities with fixed IP. It recently decided to outsource R&D in 2G and 3G technologies, reserving its in-house investments, and its famous Bell Labs, for 4G and beyond.
Meanwhile, core and edge routers are increasingly its most important business, and some analysts say the router unit would be worth more, on its own, than ALU is now. However, in Q2 some analysts had looked for more growth there, and for once, LTE was the highlight. In the Q4 earnings call, Combes said: "This fourth consecutive quarter of consistent execution has enabled us to close the first chapter of the Shift turnaround plan.”
Nokia offers upbeat forecast for networks
Nokia CEO Rajeev Suri was also in positive mood, having cast off the devices albatross. He was able to kick off his company’s new life without handsets with an upbeat outlook for the full year, and a second quarter net profit of €2.51bn ($3.38bn). Excluding the proceeds from the $4.31bn devices sale to Microsoft, Nokia reported a net loss of $35m, a big improvement over the year-ago deficit of $304.49m. Revenues were $3.96, most of that from the Networks division, which accounts for about 90 per cent of the total now. Its sales were down 8 per cent year-on-year, though up 10 per cent sequentially. Adjusting for currency changes and divestments, group sales would have been up 1 per cent on last year, and Networks sales down 5 per cent.
The strongest element of the networking business was mobile broadband, which grew its revenues by 6 per cent year on year, mainly around LTE and core networks. But this was cancelled out by a drop in global services sales, with Nokia still feeling the impact of its decision to walk away from numerous low cost or even loss-leading contracts in recent years (a tactic also adopted by ALU).
Suri said the firm is now succeeding in winning profitable deals, commenting: "We can now say Nokia Networks is very much back in the managed services business. We have won 10 new managed services deals this year.”
As at ALU and Huawei, Greater China is the growth driver in wire-less networks this year. Nokia enjoyed an 18 per cent sales increase in the region thanks mainly to TD-LTE, and was also strong in India and Japan, but European net sales were down 14 per cent, and North American revenues by 12 per cent. Europe is still feeling the effects of the economic downturn and high levels of operator competition, but Suri expects to see more activity in the US in the rest of the year, particularly at Sprint.
Nokia Networks’ underlying non-IFRS operating profit was $378.60m, or 11 per cent of net sales, a healthy figure but down on the year-ago performance of $441.93m, or 11.8 per cent. However, the company raised its outlook for this division for the year as a whole, forecasting that underlying profitability will be slightly above the high end of its target range of 5 per cent to 10 per cent. "Networks profitability was above all expectations and, as a cherry on top, they raised the network unit's full year profitability guidance," said Mikael Rautanen, an analyst at Inderes.
Although many see the Nokia Here mapping business as the firm’s secret weapon, its sales were flat in Q2, as were revenues from its Technologies unit, which handles R&D and licensing. Net sales for Here were $312.56m, though the company sold map data licences for the embedded navigation systems of 3.3 million new vehicles globally, compared to 2.7 million vehicles a year earlier. Nokia Technologies' net sales were $198.05m, up 1 per cent year-on-year as Microsoft became a more significant patent licensee thanks to the devices deal.
It bought five companies in Q2, focused mainly on small cells and network intelligence, and it has just added a new purchase for the current Q3, of Panasonic’s mobile base station business. The Japanese firm is not a major player and is likely to get “several billion yen” for its asset, according to Japanese reports, but it does provide wireless control systems to NTT Docomo, in particular. Nokia will likely be after improved Japanese prospects, and also some of the advanced technology or IPR Panasonic may own as a result of many years of R&D collaboration with the giant cellco.
Copyright © 2014, Wireless Watch
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