Mobile phone shipments hit an all-time record this quarter with 256M sold worldwide in Q3, up 22% from last year. A good portion of those phones were very low margin models sold in “second world” countries like China and India so of course the phones are cheaper – welcome to the new paradigm!
NOK sold 89M of those phones! 35% (up from 33% last Q) of the global market just doesn’t impress US analysts… Nokia projects a strong Q4 with over to 100M handsets generating roughly $1.2Bn but the average profit of $117 per phone is below analysts forecasts of $125 per phone due to the weighting in “emerging markets.”
The bottom line is that NOK’s p/e is down to 16 and falling, but much higher than MOT’s 12 and falling. Both are well below the industry average of 25, but that includes a lot of companies you’d rather not own!
So I still like NOK long-term but we need to see where it settles before jumping back in. These earnings come as no surprise to the phone makers so we can expect that both Nokia and Motorola, over half the world’s phone market, have already put the squeeze on suppliers like TXN (10/23), QCOM (11/2) and BRCM (earnings delayed by shenanigans) and, judging from all three’s performance of late, some of that is already priced in.
One big factor is Qualcomm is suing and being sued by pretty much everyone else, claiming its 1,800 patents are being infringed on. Maybe they are but nobody likes a crybaby (look at that what-his-name company that sued RIMM – sure they got paid but now they are gone and richer but no wiser) so QCOM shares are off 25% from May while BRCM is off 40%.
QCOM already gets $2.3Bn in royalties and everyone is complaining that they are being squeezed by Pau Jacobs, the new CEO, son of ex-CEO Irwin Jacobs, who actually did invent CDMA (but the whole thing was Star Trek’s idea first!).
Much like OPEC, QCOM is in an end-run as new technologies loom on the horizon which will make their patents less valuable over time and they are looking to maximize what revenues they can while it lasts.
Qualcomm is heading for it’s day in the European courts, the same ones that fined Microsoft $1Bn and ordered them to play nicely so I think I’ll stay away from this whole sector for now, especially after Broadcom’s disappointing outlook!
