RIMM Q1 – Deceased feline?

 

 

 

 

 

 

 

  • RIMM reported better than expected Q1 results driving the shares up 20% but even a dead cat will bounce if dropped from a high enough altitude.
  • Q1 Revenues and EPS were $2.87bn / LOSS $0.45 compared to consensus at $2.47bn / LOSS $0.68. (includes restructuring).
  • ASPs were also strong at $229 compared to consensus at $194 driven by the push to upgrade subscribers to BB7 and a small shift in mix back towards developed markets.
  • This was mostly on account of the better volumes of devices where 7.4m devices were sold compared to expectations of 6.7m.
  • Playbook was disappointing again shipping 130K units compared to forecasts of 217K units but frankly the volumes are so low that no one really cares.
  • I expect that RIMM will sooner or later realise the futility of its tablet offering and give it up thereby making some much needed cost savings.
  • Critically cash burn was negligible with the cash balance declining by just $60m. Amortisation and goodwill write downs wiped out the losses allowing cash to remain stable which I suspect was also well received.
  • RIMM also managed to grow the subscriber base by 2m to 80m bit the mix and quality of these subscribers is falling fast despite this quarter’s blip.
  • Out go the high spending corporate executives spending $100+ per month and in come the teenage texters in Indonesia spending more like $5 a month.
  • Guidance was very cautious with commentary surrounding the current strategy to maintain the user base through very aggressive pricing on both the devices and the subscription fees charged to operators.
  • The crown jewel is BBM. The vast majority of the user base is now using BBM as it’s a great way to send texts for fixed charge.
  • The network effect is also very strong and the minute that BBM usage starts to slide or to fall then the game is over.
  • BB10 is slowly emerging but as the value of RIMM remains in BBM, I am not sure why the users are going to care that much.
  • What is more these users are increasingly super low end and less likely to be able to pay for an upgrade to their Blackberry device especially if it doesn’t add that much extra value on BBM compared to their existing device.
  • Estimates will rise following these numbers but I can’t put my hand on my heart and say that this is the bottom, there could be worse ahead.
  • The share is horribly volatile, albeit very cheap, but I still don’t want to play one way or the other as I can’t really see the direction yet.
  • Short-term bounces around news flow are likely to remain the order of the day.

Second Screen – Limited life

 

 

 

 

 

 

 

  • One of the hottest areas in emerging technology at the moment is the scramble to provide content and services to what has become known as the second screen.
  • Surveys from Nielsen and Yahoo have shown that more than 80% of people also interact with a smartphone or a tablet while they are watching television.
  • Whether this interaction has anything to do with the content that is being watched is uncertain but the activity is enough to encourage a whole host of start-up companies to monetise that usage.
  • The idea is fairly simple with the application aiming to add another dimension to the media on the screen.
  • Additional content like information on the actors, behind the scenes clips and conversation between users are the kind of services being dreamt up.
  • However, the execution is little bit more complicated as the application needs to synchronise with the broadcast meaning that the co-operation and involvement of the broadcaster is a necessity.
  • This is why Sky and Comcast are partners of Zeebox and Time Warner is in GetGlue with Miso being backed by Google Ventures.
  • This looks like a great way to add value to the TV experience as further information and offers related to the content on the main screen is highly targeted advertising which has been shown to be many many times more effective than blanket banner advertising.
  • The problem with this is the longer term nature of television.
  • Sitting and watching a program at a pre-set time is likely to become a thing of the past and slowly but surely the content oligopoly is likely to break-down.
  • If the world moves to video on demand, then the role of these applications will be less clear.
  • The sort of data and service they provide could easily be packed along with the video download and provided by the content provider making these sorts of services obsolete.
  • However, what is mostly likely is that these start-ups will end being acquired and then used to provide these value added content and services by the content provider.
  • This is a hot new area but it is currently focusing on a use case that has an expiry date.
  • Look for those that could be acquired or have a realistic plan to deal with that eventuality.

 

Ecosystems – Exercise in futility

 

 

 

 

 

 

 

  • Every eco-system has a gate keeper and unless one can get past he, she or it, there is no point whatsoever in developing an application.
  • This is why there is no point whatsoever in Google developing its mapping application for iOS6.
  • Rumours are abound that Google is working on an application for both the iPhone 5 and iPad (Engadget) but quite frankly there is just no point.
  • Apple is the gatekeeper for iOS and it is pretty clear that it will be a cold day in hell before it allows Google Maps back into the ecosystem.
  • The irony is that the better Google makes the application, the less likely it will be for Apple to let it back in.
  • Apple has thrown its weight behind its own application and it is right to do so because maps are becoming more and more important meaning that to maintain its grip it must do its own application.
  • The problem is that maps are tricky, and just buying in raw data is not good enough, one needs to be able to interpret and render that data in a useful way.
  • This is where Apple has become badly unstuck and this is likely to be a long and tricky fix as good quality maps have tended to be a triumph of unremitting labour over genius.
  • Hence I think it very improbable that there will be a Google Maps for iOS6 meaning that those that must have it will have to jailbreak their phones, use the web version or horror of horrors, buy an Android device.
  • In similar vein, I think that you will never see Microsoft Office for iOS.
  • There is no reason for Microsoft to make this available as it would remove one of the key reasons to choose a Windows 8 tablet over an iPad.
  • The way things are shaping up it looks like each eco-system will have something special that users will need to evaluate when choosing which way to jump.
  • iOS will have the user experience and app store, Android will have mapping and navigation and Microsoft the ability to cater to those that need to create content.
  • The one exception is Blackberry which I think has nothing other than teenage texters in emerging markets and may well soon lose those.
  • I can’t see Blackberry being around much longer.

 

 

Nokia – The great giveaway?

 

 

 

 

 

 

 

  • The latest Asha devices have attracted very little attention but they could be the very thing that keeps the wolf from the door as Nokia struggles to make something from Windows Phone.
  • The new phones launched (308 and 309) are interesting as they are good enough for the low end of the smartphone market and most importantly they are as cheap as chips.
  • For $99 users get a 800MHz processor, 3-inch capacitive touch. 2MP camera and a 2GB MicroSD Card.
  • Furthermore, s40 is a well known, stable and mature operating system meaning that the phones will run the preloaded software in a rapid and reliable manner.
  • The same cannot be said for the low end Android devices where the aim of the game seems to get a touch-based device to the user at the lowest cost possible.
  • As a result these Android devices cut corners, simply do not work as well as their higher end brethren and are unable to really make the most of the Android ecosystem.
  • This makes me think that the fact that s40 has no real answer to the Android eco-system is less of a problem.
  • Hence, the scene is set for Nokia to do reasonably well from these Asha devices coming into the all important Q4 season.
  • Top line looks it will be healthy for Asha but what about margin?
  • Nokia has long said that it would use volume to get discounts on component costs (especially screens) in order to get the price of the devices down but how far will this reach?
  • My personal feeling is that the 3 inch screens are still pretty expensive even with a volume discount and therefore a sudden return to 10% margins in mobile phones (like last year) is extremely unlikely.
  • However, I suspect they are at least profitable which with the stock at €2 is likely to be well received.
  • Even minor traction on Windows 8 with some steadiness in Asha could drive optimism and hope which we all know is worth a lot to Nokia now.
  • I am going into Q4 more optimistic than I have been for many a quarter.

iPhone – Great phone, lousy app.

 

 

 

 

 

 

 

  • The volumes look like they have been the strongest ever at 10m in the opening weekend but don’t forget that the user base is at its biggest and there has been substantial pent up demand.
  • I am being mean. Despite the nay-sayers, its still the best launch of any device in Apple’s history and the company deserves credit for that.
  • However, the mapping application that has replaced Google Maps looks to be very poor indeed.
  • The phone has been warmly welcomed with its new screen, a big increase in reparability and only a $9 increase in its BOM to $197 compared to the iPhone 4S (IHS).
  • I think this increase is pretty good taking into account the larger screen and first time inclusion of LTE.
  • The map application is another story where my favourite gaff is the relocation of Berlin to Antarctica.
  • This has produced rounds and rounds of speculation about why has Apple hobbled its own user experience so badly creating a little cottage industry of workarounds and hacks to get Google maps running on the iPhone 5.
  • I suspect that the real answer is twofold. 1) The map is becoming critical and Apple simply can’t have its arch-rival controlling that aspect of its user experience. 2) It looks like Google refused to make the turn by turn functionality available on its iOS application.
  • The reasoning is pretty simple. If the iOS mapping functionality is sub-par then iOS users might become Android users over time.
  • This is the one thing that both Apple and Google seem to agree on and I think a major reason behind Apple’s decision to move to its own mapping application.
  • This is a dangerous juncture for Apple as it is at risk of seriously damaging its pristine reputation in the user experience world.
  • If people begin to believe that Apple maps is a poor experience, they won’t use it meaning that they will not notice even when it begins to improve.
  • I don’t think for a second that Apple users are as fickle as Android users but this could change unless the mapping issue is fixed and fast.
  • Time is of the essence and Apple will need to deploy cash and bodies to escape unscathed.

 

Intel vs. Arm – Not there yet

 

 

 

 

 

 

 

  • The ARM vs Intel battle and well understood but has become somewhat quiet in recent months as benchmarks have shown that Intel has closed a good portion of the gap on ARM with its Medfield processor.
  • A number of handset companies have been convinced to have a crack at making Android phones based on Medfield but with very little success to date.
  • Its one thing to show a chip consuming equivalent power on a development board and quite another when it comes to power consumption in a battery powered device out there in the wild.
  • What really counts is the speed at which the power bars disappear during the day as the user uses his phone and on that basis it seems that Intel still has a pretty long way to go.
  • Recent results from some of the Intel devices in both the high end and the low end are not encouraging and only Lenovo and ZTE have seen meaningful volumes and that is from multiple products. (Digitimes).
  • I suspect that the real issue remains power consumption.
  • With a full instruction set and an architecture that was designed before it was even thought possible that computers would have batteries, Intel is very likely to continue walking with this monkey on its back.
  • As a result it will be forced to migrate faster through the geometries and innovate around manufacturing in order to keep up with the much more power efficient ARM design.
  • Intel may catch up one day, but its not yet and ARM will always have the opportunity to level the playing field and surpass Intel once again when it comes to power consumption.
  • Don’t bet on Intel making a dent in Qualcomm, Nvidia or MediaTek yet.

 

Apple vs. Samsung – Cat and Mouse

 

 

 

 

 

 

 

  • Samsung has been thoroughly defeated in the courtroom but in reality, Apple has achieved very little.
  • The object of the exercise is to stop Samsung from making money from its innovations but last time I checked Samsung is still churning out Galaxy SIII’s and the Galaxy Note by the million.
  • Neither of these two devices were cited in the suit because they did not exist at the time of filing.
  • This means that further action will be necessary if Apple wants to really stop Samsung in its tracks.
  • Herein lies the problem. The life cycle of a patent infringement claim is much longer than that of a mobile phone.
  • Hence by the time one has been through the assertion, trial, verdict and appeal, the device will in all likelihood no longer be selling in volume making any injunction useless.
  • Furthermore the procedure of appeals for awarded damages is so time consuming that back-royalties will take years to appear and will carry the risk of being hugely reduced upon appeal.
  • This case is a classic example. I think that Samsung had pretty good evidence prior-art for the patents that Apple claimed it was infringing but the evidence ended up being excluded from the trial.
  • I can only assume that this was due to the rather poor performance of its defence counsel.
  • Hence this evidence could easily re-surface on appeal and put at risk both the verdict and the awarded damages.
  • It looks to me like Apple’s only real recourse is to go for a pre-trial injunction and this is where the real risk for Samsung lies.
  • Apple has added the Samsung Galaxy SIII to the list of the devices it wants banned at the injunction hearing on December 6th but seeing as infringement has not been proven for this device I would expect this request to be thrown out.
  • I am sure that Apple expects this and is planning to immediately file a suit against the Galaxy SIII and Note II citing the 6 patents that have already been upheld by a court.
  • In this instance, Apple will have a very strong case to apply for and get a pre-trial injunction against these devices.
  • Hence, Samsung could be left with an injunction on its hottest selling devices in the USA before the end of the year.
  • Although, this would only have a small effect on group EBIT, the sentiment hit will be much greater and likely to keep a lid on any recovery of the share price.
  • The probable release of the Samsung Galaxy SIV in March 2013 would just add another twist the story resulting in another lawsuit and pre-trial injunction.

iPhone 5 – Pre order sleight of hand

 

 

 

 

 

 

 

  • There has been much ado made of the fact that pre-orders for the new iPhone 5 have sold out 20 times faster than the iPhone 4S.
  • However no one has asked the question: How many iPhone 5s does Apple have on hand to ship on September 21st?
  • If that number is much lower than the year before and demand remains the same then of course it will sell out faster.
  • The iPhone 5 sold out 60 minutes after ordering went live which looks staggering compared to 22 hours for the iPhone 4S and 20 hours for the iPhone 4. (http://techcrunch.com/2012/09/14/iphone-5-pre-order-sells-out-20x-faster-than-4-and-4s-further-highlighting-apples-dominance/)
  • But how many iPhones does Apple have?
  • My guess is far fewer than last time.
  • This is because the supply chain has ramped up production much later this year than last due to the problem with the yield on producing in-cell touch screens.
  • Typically, the supply chain starts to move in July with August running at a very high level, but this year, nothing really started to move before the second half of August.
  • So back of the envelope would suggest that Apple had the supply chain running flat out for 2 weeks instead of the more normal 6.
  • Taking this to its logical conclusion one would expect that Apple has around 1/3 of the inventory on hand this year compared to last and therefore with demand remaining the same it should have sold out in 3 hours or so.
  • 3 hours is still a great result but not quite the mind blowing 60 minutes that has the commentators, fan base and the stock jumping up and down like mad.