We had a number of interesting earnings reports today, so let’s get to it!
Nokia’s numbers for the last quarter were awful, with smartphone sales falling sharply. You can’t blame that completely on the Windows Phone decision, but it darn sure didn’t help and it’s not going to help them in 2012 either. The question now is whether the new Windows “RT” configuration for a phone could succeed even if Microsoft manages to get it out before the holidays, which isn’t likely.
You have to wonder how anyone could believe that this was a good idea, either at Microsoft or Nokia. The answer in part lies in the corporate culture, which tends to surround top people with others who are like-minded and thus propagates delusion. It’s also partly due to the post-bubble mindset of SOX; you need quarterly numbers with earnings growth or your stock price can’t go up without a Federal investigation. At any rate, these guys may not yet be as toast as RIM, but they’re darkening around the crust for sure.
Verizon reported slightly better than expected numbers, and its FiOS stuff was particularly interesting though it was wireless performance that boosted its image with the Street. You can see how bad basic wireline service performs when you note that FiOS generated 63% of consumer-sector wireline revenue with less than 5.5 million users. What this shows is that if you aren’t a linear TV provider you’re never going to be able to profit on wireline infrastructure. Given that it’s exceptionally difficult and expensive to deploy video-capable infrastructure in anything but high-density areas, this suggests that most rural telecommunications programs are doomed to fail unless subsidies get steadily higher.
Wireless performance was boosted by the iPhone, particularly the 4S, and Verizon’s low rate of churn suggests that when handsets are equal they can beat AT&T in terms of loyalty and perhaps eventually total customer base. Data revenues and smartphone penetration both rose, and both of these numbers are indicators that infrastructure augmentation will be needed to keep up with traffic growth. However, as we’ve pointed out before, wireless devices tend to push up capacity needs in cell count first, then backhaul, then metro. In the main they don’t drive up core usage all that much, which isn’t good news for equipment vendors who get better margins there.
Speaking of equipment vendors, Plexus reported their numbers and they were decent except for the network component of their business. Street analysts report that the component of Plexus’ sales related to telecom vendor Juniper declined by 35% Q/Q, which would suggest either a general dip at Juniper or a shift in product mix. Juniper reports next week, so we’ll know more then. EMC beat estimates based on very strong storage sales, but their stock was down pre-market on what was seen as conservative guidance. F5’s situation was similar; they beat the Street estimates but didn’t raise annual guidance as expected and took a quick hit after hours; they’ve recovered this morning. It is always instructive to match F5 against vendors like Brocade, Cisco, and Juniper because F5 is essentially a pure play in the data center, where I think most of the real value is. Unless these other guys gain traction relative to F5 it will be hard for them to succeed in the enterprise.
VMware’s numbers met expectations and the firm’s shares are up slightly pre-market. I expect that VMware will benefit from the open-source cloud-stack disorder of the moment; its position is completely under its own control and it’s perceived as a steady course to follow for enterprises moving into virtualization and the cloud. The question will be whether they can move out of pure IaaS into a broader cloud model, and that’s one I can’t answer based on the company’s current position. Thus, I’d be cautious about the company in Q1 of 2013 unless they come up with a broader strategy between now and then. The cloud is more than just hosting VMs on public servers. Oracle’s increased rhetoric around SaaS is a pretty good indicator that the value of the “higher-layer” cloud services will be a major marketing point later this year.