Archive: Palm (PALM)

Smartphone Intelligence Report

I took a look through recent conference calls to get a feel for conditions in the smartphone segment.

First, we are pleased to report smartphone sell-through grew 34% to 2.7 million units for the year and now represents 80% of our total revenue, up from 69% last year. In the fourth quarter, our smartphones sell-through reached a record high, 750,000 units, up 43% year-over-year….
Smartphone revenue grew 15% to $1.25 billion on unit shipments of 2.7 million. Unit sell-through for smartphones grew 34% year-over-year to 2.7 million units, while overall channel inventories remained flat….

(Excerpt from full PALM conference call transcript)

Revenue for the first quarter ended June 2, was $1.08 billion, up 16% from $930 million in the previous quarter. Handheld devices represented $824 million, or 76% of RIM’s revenue during the quarter, up from the 73% of total revenue in the previous quarter. Total devices shipped in the quarter were approximately 2.4 million, and were up from 2 million in the prior quarter. Approximately 2.2 million new devices were activated in the Q1, either for new customers or for replacements and upgrades.

(Excerpt from full Research in Motion (RIMM) conference call transcript)

Given that Palm and RIMM have the most exposure to smartphones, the two provide an interesting contrast. RIMM is selling nearly as many in a quarter as Palm did for the year. Both Palm’s Treo and RIMM’s Blackberry are sold worldwide on many carrier networks and in several varieties. Yet a certain upstart selling one model on one carrier network thinks it can catch up with RIMM.

Finally, we reiterate our goal of selling 10 million iPhones in calendar 2008.

(Excerpt from full Apple (AAPL) conference call transcript)

Expressed as 1% of handset units that doesn’t sound like much. Yet when compared to the success built up over many years by a company considered very successful it appears audacious.

Topics: Apple (AAPL), Communications Equipment, Computer Hardware, Palm (PALM), Research in Motion (RIMM), Technology | No Comments

NOK: Nokia Looks Good By Comparison in Lousy Handset Market

Motorola preannounced but still disappointed, Research in Motion (RIMM) and Palm (PALM) dueled sob stories about smartphone prices, and altogether cellphone makers have been working to prove us right.

As I said a few weeks ago, the performance in our Mobile Devices business in the first quarter was unacceptable, and we are committed to restoring it to profitability and positive cash flow.

(Excerpt from full MOT conference call transcript)

By contrast, Nokia said:

Olli-Pekka Kallasvuo

Thanks, Bill. Good morning and good afternoon, ladies and gentlemen. Nokia had a solid first quarter.

(Excerpt from full NOK conference call transcript)

If there is any indication that the handset market is slowing down, it is Nokia calling 4% year/year growth “solid.” What they mean is, “at least we aren’t in the gutter like some others we know.” Still, a caller pointed out Nokia’s weakness in the U.S. market:

Richard Kramer – Arete

You really didn’t address fully the question previously on the U.S. market. I think a year or so ago when you came on as CEO, you mentioned you were going to spend a week or so out of every month in the U.S. We continued to see units decline year on year. Can you give us some sort of prognosis, when and if the U.S. might turn around for Nokia, and what might spark that happening?….

Olli-Pekka Kallasvuo

I will start with the second question and then I will move on to this turning up the heat matter. If you look at the U.S. market and I simplify a bit, if you allow that, in order to make the point. So in China, we do have about 1.3 billion customers — or potential customers — meaning the consumers in that market. In the U.S., we have four — and I’m not talking about billions here. Four customers. In that way, at the moment because of the operator dominance in the channel, you need to look at each of these customers separately. You have, in this way, one dimension only looking at this situation. So there we have to look at obviously, Verizon Wireless, Sprint Nextel, AT&T, and T-Mobile, the four customers that really are very, very important in the totality.

(Excerpt from full NOK conference call transcript)

That certainly cleared things up. For all the tea there may be in China, the handset customers tend to be buyers of low-end models. One of the big problems for handset makers is the shift to the low end, and the impact that has on margins. And all of the device makers are going to need a better answer for it.

Topics: Motorola (MOT), Nokia (NOK), Palm (PALM), Research in Motion (RIMM), Stock Market | No Comments

RIMM: Research in Motion Conference Call Confirms Our Bearish Call

Our first reaction to the Research in Motion (RIMM) earnings was release was that, in line with our forecast, “companies trading at a trailing P/E multiple of 60, as Research in Motion was, are generally held to higher expectations. ” Not wanting to get too cocky, however, we decided to give the transcript a thorough reading to see how management’s comments fit in with our outlook for wireless. For example, the company says:

Pearl continues to do exceptionally well and is available through over 90 carriers around the world, and the 8703 for CDMA continues to show strong adoption and the response to the recent launch of the BlackBerry 8800 has exceeded our expectations.

(Excerpt from the full RIMM conference call transcript)

This appears to contradict our overall bearishness toward the handset market, and particularly the notion that consumer sales may be frozen by the pending Apple (AAPL) iPhone launch. However, anything sold for negative $75 ought to “do exceptionally well,” and management admits as much shortly afterward:

Carrier programs such as mail-in rebates and the launch of the White Pearl with T-Mobile and the launch of the 8800 at AT&T all served to stimulate demand in January and February.

(Excerpt from the full RIMM conference call transcript)

It also jibes with comments from Palm after their recent quarter:

We saw an increase contribution from lower priced smartphones as we introduced the Treo 680 to the market at a lower price point and a sleeker form factor to attract a new customer demographic. As expected, smartphone ASPs declined in the third quarter.

(Excerpt from the full PALM conference call transcript)

Motorola’s comment in the press release preannouncing their disastrous quarter also fits in: “The company expects the Mobile Devices business to incur an operating loss in the first quarter, and to experience a gradual recovery in the second half and be profitable for the full year.” It all adds up to the same message: there are too many handsets available for sale. And, as usually happens when there is too much of something, prices are getting cut so deep that the sellers can’t make any money. They are all acting like the restauranteur who prices the menu to lose money but plans to make it up in volume. Research in Motion even helps us quantify it:

Total devices shipped in the quarter of approximately 2 million were up from 1.8 million in the prior quarter. Sell-through in the quarter was strong with approximately 1.75 million devices being activated, which means we are selling almost two devices for each new subscriber account added.

(Excerpt from the full RIMM conference call transcript)

It also means that they sold 250,000 more to carriers and retailers than the carriers and retailers sold to their customers. That wouldn’t be so bad if the company weren’t piling up its own stash.

Inventory on hand increased by approximately $40 million as we continue to purchase additional raw materials and build semi-finished goods to support demand for current and upcoming product launches.

(Excerpt from the full RIMM conference call transcript)

Of course, that $40 million was just the sequential increase. On a year/year basis inventories are up 90% to $255 million, which is twice the growth rate of sales. The sequential inventory growth of 15.7% is also faster than even the high end of the range for sequential sales growth guidance (10.2% – 15.6%). Again, too many phones.

The thorough reading did little to change our outlook toward wireless or expectations for RIMM stock.

Topics: Motorola (MOT), Palm (PALM), Research in Motion (RIMM), Stock Market | No Comments

PALM: Palm Buyout Can’t Occur Quickly Enough for Shareholders

Palm Reports Q3 FY07 Results: Financial News – Yahoo! Finance

Palm, Inc. (PALM) today reported revenue of $410.5 million in the third quarter of fiscal year 2007, ended March 2. Smartphone sell-through for the period reached a company record high totaling 738,000 units, up 30 percent year over year and up 20 percent sequentially.

It’s too bad they can’t make any money doing it. Because of the chronic oversupply we’ve talked about previously, all those extra units did next to nothing for sales and shrunk the bottom line.

One year ago Palm did $388.5 million in sales, this year they did $410.5. That is 5.6% using my math. If you are talking sequential growth they did $392.9 million in the November quarter, so the sequential growth was only 4.5%. And the January quarter includes the holiday sales season and is presumably the strongest. One positive sign was that inventory declined both on a sequential and a year/year basis. However, it is unclear how much inventory remains in the sales channel.

How about the guidance? $400-$410 marks a sequential decline and a midpoint growth rate of 0.5% over last year’s $403.1 million. Oh, and the consensus estimate was $416.

If it weren’t for buyout rumors there is no way they would be selling at 21x trailing earnings.

Topics: Palm (PALM), Stock Market | No Comments

MOT: Motorola Confirms Our Thesis – No Bottom in Sight for Mobile

We have been saying for quite some time that the mobile phone market had peaked for the current cycle, and have been bearish on several of the associated stocks. For example, we recently said:

With potential buyers scheming months in advance on how to get hold of an iPhone, it’s a safe bet they won’t be buying a BlackBerry (RIMM), Treo (PALM), Nokia (NOK), Motorola (MOT - Annual Report), or whatever. And yes, we know there will be some people who prefer the traditional models and continue to buy them. But many of them will also wait to check out the iPhone, just in case.

We have also been surprised by the upbeat nature of some of the mobile phone suppliers such as Texas Instruments (TXN - Annual Report), who we believe are cruisin for further bruisin.

This is something of a confirmation of what we saw in the employment report last week. Things are slowing down, despite the arguments that the housing malaise wouldn’t spread. As we noted earlier today we were surprised Texas Instruments was able to tighten their guidance rather than lower it outright. A new cel phone probably isn’t a necessity for most consumers, and is an easy way to avoid some spending. What will the market reaction be if they do miss?

And, regarding optimism from National Semiconductor (NSM), we said:

So he has been fairly consistent in his categorization, which moved over time from “current” to “behind us.” But we’re still afraid that “everyone he talks to” is probably a narrow group of industry optimists. We see inventory continuing to be a problem, particularly given the slowing consumer’s likely impact on the mobile telephone market.

Judging from the revision to Motorola’s earnings forecast, it certainly doesn’t look as though the correction is “behind us.” In fact, for suppliers it seems likely to continue well into the future, given Motorola would seem likely to cut its orders back to a level more appropriate to meet end demand. Let’s take a look at some of the highlights from Motorola’s announcement:

The first quarter revision was prompted by lower than anticipated sales and operating earnings at the company’s Mobile Devices business….

“Performance in our Mobile Devices business continues to be unacceptable, and we are committed to restoring its profitability,” said Edward J. Zander, Chairman and Chief Executive Officer of Motorola. “After a further review following the leadership change in our Mobile Devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort.”

Restoring its profitability? Last year the RAZR was the hottest thing since sliced bread. It’s not like they have been in need of a major turnaround. They just made too damn many phones.

Motorola now expects sales for the first quarter of 2007 to be in the range of $9.2 to $9.3 billion. First quarter GAAP results are expected to be a loss in the range of $0.07 to $0.09 per share, including charges of approximately $0.09 from the items highlighted below.

So even without restructuring charges, the company only expects to break even. Analysts were expecting $0.17 on $10.5 billion. They are falling short by more than a billion dollars on the top line and $0.17 on the bottom line. This isn’t an earnings miss, it is an unmitigated disaster brought on in part by their failure to recognize the oversupply issue earlier. How do we know?

In emerging markets, particularly India, Africa and South Asia, competitors lowered prices at a faster rate than anticipated.

Prices fall “faster than anticipated” when supply exceeds demand. It’s Economics 101. It gets even better:

For the full year 2007, Motorola currently expects overall sales, profitability and operating cash flow to be substantially below prior guidance. The company expects to be profitable for the full year and also to generate positive operating cash flow. The company expects the Mobile Devices business to incur an operating loss in the first quarter, and to experience a gradual recovery in the second half and be profitable for the full year.

Analysts were expecting $1.05 in EPS. So Motorola’s guidance for all of 2007 is that $1.05 > Earnings > Zero. Boy, that’s helpful. But don’t worry. Motorola has a plan:

Motorola is committed to improving the financial performance of the Mobile Devices business by pursuing market segments and product tiers that demonstrate the best opportunity for high gross margins and meaningful profitability. In this regard, the company is focused on steps to reduce cost and improve consumer experiences, including:

  • Deploying open standards Linux/Java™ software across mid- and high-tier devices to enhance the experiences available on handsets
  • Accelerating a more cost-competitive silicon strategy
  • Shifting the marketing approach to include experience as well as design as a product value proposition
  • Introducing new feature-rich products that deliver compelling mobile experiences
  • Simplifying platform and product portfolio while transitioning out of legacy platforms
  • Improving product design processes to achieve competitive price points

Unfortunately, “stop making so damn many phones” does not appear to be part of the plan. Until Motorola and its competitors adopt that last, crucial step this won’t be the last acerbic article we write on the issue.

Disclosure: Author owns put options on Research in Motion (RIMM).

Topics: Apple (AAPL), Motorola (MOT), National Semiconductor (NSM), Nokia (NOK), Palm (PALM), Qualcomm (QCOM), Research in Motion (RIMM), Stock Market, Technology, Texas Instruments (TXN) | 3 Comments

TXN: What is TI Smoking To See 20 pct Handset Unit Growth?

TI sees 2007 global cellphone unit sales up 20 pct | Technology | Technology | Reuters.co.uk

Global sales of mobile phones are expected to grow to between 1.1 billion and 1.2 billion units in 2007, up as much as 20 percent from about 1 billion units sold last year, a Texas Instruments (TXN.N: Quote, Profile , Research) official said on Friday. “We are optimistic on the growth momentum of low-price mobile phones,” Terry Cheng, the president of Texas Instruments Inc. (TI) Asia, told Reuters on the sidelines of a seminar in Taipei. TI is the world’s biggest cellphone chip maker.”The company has shipped large amounts of chips for low-price mobile phones since November and December last year, which will help boost our business significantly this year,” he said.

Um… shipments in November and December boosted last year’s business. You aren’t allowed to count them twice. And as to market growth, they seem way too high.

In October Merrill Lynch forecast about 950 million units for 2006 and less than 10% growth in 2007. That takes you to maybe 1.05 billion. That was also in line with an industry forecaster’s predictions.

At least we’ll give credit to TI for going out on a limb.

Topics: Freescale (FSL), Motorola (MOT), Nokia (NOK), Palm (PALM), Qualcomm (QCOM), Research in Motion (RIMM), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Stock Market, Texas Instruments (TXN) | No Comments

Sprint the Latest Wireless Signal to Get Crossed

Last month, astute observers (defined as those with a pulse) could notice that there were an awful lot of companies in the wireless food chain announcing disappointing results. Last week Motorola joined the club, and yesterday we got news from the third-largest US wireless carrier. Sprint to Cut 5,000 Jobs; Stock Plunges: Financial News – Yahoo! Finance

Sprint Nextel Corp. reported Monday that its cell phone business suffered a net loss of 300,000 monthly subscribers in the fourth quarter and that the struggling wireless company will cut 5,000 jobs.The company’s stock plunged more than 8 percent after the financial update, which included a 2007 outlook shy of many Wall Street forecasts.

Last month we suggested that several high-multiple names might be worth avoiding. None of those stocks has since blown up, but that doesn’t mean they aren’t standing in a mine field.

Topics: AGR, AT&T (T), Alltel (AT), Altera (ALTR), Analog Devices (ADI), Communications Equipment, Communications Services, Cree (CREE), Linear Technology (LLTC), Maxim Integrated Products (MXIM), Motorola (MOT), National Semiconductor (NSM), Nokia (NOK), Palm (PALM), PowerWave Technologies (PWAV), Qualcomm (QCOM), Research in Motion (RIMM), Semiconductor HOLDRS (SMH), Semiconductors, Silicon Laboratories (SLAB), Sprint Nextel (S), Stock Market, Texas Instruments (TXN), UT Starcomm (UTSI), Verizon (VZ), Wireless, Xilinx (XLNX) | No Comments

Merrill Ups Handset Sales Forecasts

Merrill Lynch boosted their forecasts for handset sales in 2006 and 2007.  The increases are a bit out of synch with recent disappointing reports from the handset channel. Cellular-news.com reports:

Merrill Lynch has upgraded their forecasts for handset sales next year to 1,067 million, in a research note from their analysts. Their 2006 handset estimate has also increased from 918 million to 970 million. In their view, 2006 could be the peak year for global and emerging market net adds at 440 million and 387 million.

They expect the annual growth rate of handset unit shipments to slow from 20-30% seen in 2003-06 to 10% or less in 2007-10, mainly driven by a slowdown in emerging markets subscriber growth from 28% YoY in 2006 to 18% YoY in 2007. However replacement handsets in emerging markets will grow at 66% in 2007 and provide the impetus for industry unit growth.

WCDMA handset market should accelerate, driven by HSDPA adoption, to 67% YoY to 168 million, up from 10% to 15% of the market in 2007.

The Cellular-news article has a decent chart showing the specific forecast changes, for those tracking such things.

Topics: Motorola (MOT), Nokia (NOK), Palm (PALM), Qualcomm (QCOM), Research in Motion (RIMM), Semiconductor HOLDRS (SMH), Semiconductors, Stock Market, Technology | 1 Comment

Wireless Unlikely to Help Semis Next Year

A recently published industry study suggests this mobile phone sales growth will slow sharply next year.

Global cellphone sales growth set to slow -report | Technology | Internet | Reuters.co.uk

The report by London-based Informa Telecoms & Media forecast mobile handset sales rising to 943 million units in 2006 from 814.4 million last year, and crossing the 1 billion mark next year to reach 1.03 billion.”But this year is going to be the last year of double-digit growth,” David McQueen, principal analyst at Informa and one of the report’s main authors, told Reuters.

Based on estimates we have seen published this year, they aren’t exactly going out on a limb. Still, with next year soon to become “this year,” investors may pay more attention to the slowing sales pattern. And with wireless having accounted for much of the strength in semiconductors this year, the repercussions could extend beyond handset makers.

It won’t help the growing inventory, that’s for sure.

Topics: Communications Equipment, Motorola (MOT), Nokia (NOK), Palm (PALM), Qualcomm (QCOM), Research in Motion (RIMM), Semiconductor HOLDRS (SMH), Semiconductors, Stock Market, Technology | 2 Comments

Message from Durables Report: Play Defense

The market being in a celebratory mood, little attention is being paid to such gloomy news as the durable goods report, which Briefing.com describes in rather bleak terms:

August durable goods new orders dropped a disappointing 0.5%.  There was nothing in the breakdown of the data to provide contrary cheer. Every key category was soft.

So, in an attempt to find the silver lining and push the market over the critical hump so we can enjoy the champagne we have had on ice since January, 2000, here are the durable goods categories that showed better growth in both shipments and new orders in August (all data sourced from US Department of Commerce, on a non-seasonally adjusted year/year basis.)

The clear winner in today’s report was Defense Capital Goods, which saw nearly a 70% rise in new orders and a 10% rise in shipments. And while the trend does nothing to help our general sense of well-being, with inventory and backlog flat and a customer with good credit quality the defense sector appears to be a good play in this environment.

DefenseCapitalGoods.jpg

The runner-up for our affections is Communications Equipment, not traditionally a defensive play but perhaps so today due to how low the sector sunk and the high credit quality of its remaining customers. Those who deride Verizon’s capital spending may not appreciate that the company is one of the last threads on which the economy hangs. At any rate, their spending appears to be lending a helping hand to the environment for comm equipment manufacturers.

CommunicationsEquipment.jpg

In the “ehh, I guess we’ll take it” department is Transportation Equipment. New orders improved and turned positive, while shipments did just a bit better. Still, the inventory growth suggests that the industry is making too much stuff and will have to cut prices, production or both in the near future.

Transportation.jpg

Finally, last but (unfortunately) not least comes Motor Vehicles and Parts.  Orders and shipments for beleaguered Detroit were both down year/year. However, they were down less than they were in July. With inventory building up further the industry may still be going to hell in a handbasket, but it will take longer to get there. That’s positive, isn’t it?
motorvehicle.jpg

We now return to our previously scheduled celebration.

Topics: AH, Alcatel-Lucent (ALU), Autos, Capital Goods, Ceradyne (CRDN), Communications Equipment, Communications Services, Consumer Cyclical, Corning (GLW), Daimler Chrysler (DCX), Economy, Embraer (ERJ), Ford Motor (F), General Motors (GM), L-3 Communications (LLL), Motorola (MOT), Nokia (NOK), Palm (PALM), Qualcomm (QCOM), Research in Motion (RIMM), Stock Market, Technology, Transportation, UT Starcomm (UTSI) | 1 Comment