Weekly Mobile Notes: BlackBerry Earnings, Nokia Siemens And Apple’s Next iPhone

by Trefis Team
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The past week saw quite a few developments in the mobile sector. BlackBerry (NASDAQ:BBRY) announced its Q1 2013 earnings, surprising with a net profit as 1 million sales of the Z10 helped the company almost reach operational break-even despite a slump in overall revenues.

Rumors surrounding Apple’s (NASDAQ:AAPL) future iPhone plans gained momentum, with the Wall Street Journal claiming that Apple’s next-generation iPhone will enter production this quarter implying that the company may be preparing up for a summer launch of its flagship model.

Nokia (NYSE:NOK) is faced with a tricky decision regarding the future of its wireless joint venture with Siemens after a six-year shareholder agreement between the companies ended this week, making it likely that Siemens will either partially or fully exit the venture by the year-end.

BlackBerry

BlackBerry delivered a surprise net profit in the final quarter of fiscal year 2013, banking on the higher-margin sales of its newly launched Z10 smartphone to almost reach operational break-even despite a slump in overall revenues. The handset maker saw sales of almost 6 million smartphones during the quarter, with BB10 accounting for almost 1 million of the shipments. While 1 million may not sound like a lot, it must be taken into account that only one model, the full-touch Z10, was available for only a third of the quarter in a few select countries which did not include the U.S. Also, many must be waiting on the sidelines awaiting the launch of Q10 next month considering that QWERTY models have traditionally been BlackBerry’s main strength. Considering all these factors, BB10 seems to be off to a good start but next quarter should provide a much better basis for judging the long-term viability of the new platform since it will be the first full quarter of availability and will see the BB10 launch in the all-important U.S. market as well.

On the other hand, what was disappointing was the steep loss of subscribers for the second consecutive quarter. The company lost as many as 3 million subscribers, thrice the subscriber loss in the previous quarter, to end Q4 with a subscriber base of 76 million. This was one of the most important metrics that we were looking for going into Q4 since a decline in subscriber base not only reduces the size of BB10′s addressable market but also has a direct impact on BlackBerry’s ability to draw high-margin recurring service fees in the future. The Push Email division, which includes these fees, has grown in importance due to a steep decline in handset revenues, and accounts for almost 30% of BlackBerry’s value currently. (see BlackBerry Surprises With Profit Even As Subscriber Loss Deepens)

Nokia

Nokia Siemens Networks may not exist in its current form for much longer. Just days before the expiry of an existing six-year old agreement between the partners in April, Nokia and Siemens got together to carve out a new plan for their telecom infrastructure joint venture last week. According to the new agreement, both partners have the freedom to do as they please withtheir respective stakes in the company without the danger of being vetoed by the other party. While both companies plan to run the JV as usual in the short term, Siemens, which has only a non-controlling stake in the JV and has also been looking to shed its non-core assets in recent years, will most likely reduce its stake or exit the JV completely in the coming months. Nokia, on the other hand, faces a tricky situation.

The joint venture has been the lone bright spot for the handset maker over the past year as its smartphone sales plummeted amid a tough transition to Windows Phone. Due to the ongoing restructuring process as well as the transition to 4G LTE taking place in many parts of the world, the venture not only returned to operating profitability last quarter but also generated cash for four quarters in a row. At a time when Nokia is conserving cash by suspending dividend payouts and leasing its headquarters instead of owning it, NSN is proving highly valuable with its steady cash flows despite not being a core asset. Last quarter, the company managed to strengthen its cash position by 800 million Euros, more than 80% of which came from NSN. As a result, we estimate that NSN is Nokia’s biggest value contributor currently accounting for almost 34% of our $5 price estimate for the company. This essentially means that Nokia won’t part with such a valuable asset easily. (see Nokia Faces Tough Decision On NSN’s Future As Siemens Plans Exit)

Apple

In a bid to counter the growing threat from Samsung (PINK:SSNLF) and other smartphone makers, Apple may be looking to release an iPhone upgrade sooner than expected. The iPhone maker seems to have made plans to start production for the next-generation of its flagship device in the second quarter of the year, according to the Wall Street Journal. [1] Beginning production in Q2 itself could imply a possible launch during the summer if the report is true. The company is also rumored to be working on a cheaper version of the iPhone, which could be launched in the second half of the year. The Journal speculates that the cheaper iPhone will feature a display similar in size to the iPhone 5 but use a casing made of a different material.

Going for an early launch of the next-generation iPhone could mean that Apple is going after Samsung’s recently launched Galaxy S4. The incredible success that Samsung had with the flagship Galaxy S in a segment that has long been Apple’s hegemony is a matter of concern for the iPhone maker. Moreover, Samsung sent a clear message across by holding the launch event of the S4 for the first time in the U.S., a traditional Apple stronghold. Apple might therefore be looking to decrease the upgrade cycle of the iPhone to give Samsung less of a window to gain high-end market share with the S4. As for the cheaper iPhone, launching one this year will go a long way in tapping the enormous growth potential of the emerging markets where 3G penetration is low and the iPhone way too expensive without carrier subsidies. (see Apple May Speed Up iPhone Launch And Release A Cheaper Version This Year)

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Notes:
  1. Apple to Begin iPhone Production This Quarter, WSJ, April 2nd, 2013 []
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