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Wireless Infrastructure Newsletter

Chinese LTE a highlight for ALU's Q2 July 31 2014

Investors pleased with improvement in operating margins while CEO Combes says Shift Plan on track

By Caroline Gabriel

China, now the world's largest mobile market, looms large in every vendor's results this quarter. Rising competition from Chinese suppliers is really starting to be felt in smartphones, but in infrastructure, the major players have largely adjusted - however painfully - to their new competitive landscape, and the massive presence of Huawei. Alcatel-Lucent has suffered for years from those new rivalries, but in its second quarter, it showed how Chinese growth is also an opportunity. Its highlight was better than expected performance in wireless equipment, particularly driven by Chinese sales, and somewhat offsetting some disappointments in its crown jewel, the core router business.

CEO Michel Combes said his 'Shift Plan' - the last and most promising of a series of turnaround programs at ALU since its troubled merger - was on track and reiterated his goal of achieving positive free cashflow by the end of 2015. The most positive metric for investors was the improved operating margin, up to 4.1%, from 1.3% in the year-ago quarter.

Revenue was up just 0.7% year-on-year to €3.28bn, in line with analyst predictions but well below growth at Ericsson (5%) and Huawei (but better than Nokia's 8% top line drop). Core operating profit tripled to €136m, well ahead of forecasts, and gross margin rose from 31.2% to 32.6%.

Combes also said he was continuing a key aspect of the Shift Plan, divesting non-core assets, and will seek an IPO of the submarine cable unit in the first half of next year.

The ongoing cost cutting program, which has been intensified since Combes took over from predecessor Ben Verwaayen, helped boost the operating margin, as did strong LTE sales in China and the US. But the costs of the restructuring kept ALU firmly in the red, with a net loss of €298m. This was, however, much reduced from the year-ago figure of €885m. ALU has failed to post more than one-off quarterly profits since its creation in 2006, and Combes is addressing the challenge with promises to cut 10,000 jobs and €1bn in costs, as well as to offload a further €1bn in assets.

That will see ALU focusing its business on a narrower range of activities, with converged IP networking and cloud platforms as the main growth engines. Unlike rival Nokia, which is focusing entirely on mobile broadband, ALU has designated mobile-only networks mainly as a cash generator, and is integrating its LTE activities with fixed IP. It recently decided to outsource R&D in 2G and 3G technologies, reserving its inhouse investments, and its famous Bell Labs, for 4G and beyond.

Meanwhile, core and edge routers are increasingly its most important business, and some analysts say the router unit would be worth more, on its own, than ALU is now. However, in Q2 some analysts had looked for more growth there, and for once, LTE was the highlight.

In the Q4 earnings call, Combes said: "This fourth consecutive quarter of consistent execution has enabled us to close the first chapter of the Shift turnaround plan."


Salinas may block Telefonica's Mexican grand plan July 31 2014

Co-owner of Mexico's third cellco, Iusacell, says his stake is not for sale, as Spanish giant seeks acquisitions

By Caroline Gabriel

Telefonica aims to take advantage of the regulatory shake-up in Mexico to improve its position, in a major mobile economy which nevertheless generates less than 3% of its revenue. It is reported to be in merger talks with mobile operator Iusacell, though a deal could be blocked by the latter's 50% shareholder, billionaire Ricardo Salinas.

Mexico is Latin America's second largest telecoms market, but has been dominated by Telefonica's arch-rival in the region, America Movil, controlled by another billionaire, Carlos Slim. However, the regulator is looking to reduce Movil's stranglehold, which could open the door for Telefonica. The Spanish giant confirmed it was in takeover talks with a mobile operator in Mexico, reported to be Iusacell.

That deal would unite the country's second and third largest mobile carriers and would have 27m subscribers in total, but the resulting carrier would still have only 27% mobile share, far behind America Movil with 71m connections. It is not clear it would appeal to regulators either. Although it would create a more viable competitor for the market leader, it would concentrate virtually all the cellphone base, in a rapidly growing mobile economy, in the hands of just two powerhouses - reflecting the Movil/Telefonica near-duopoly which exists in many areas of Latin America, often making it hard for smaller firms to enter or compete.

However, new competition could be introduced when America Movil offloads assets, as Slim is proposing in order to reduce its share voluntarily and avoid more swingeing regulator-enforced actions. One European firm (which may also be Telefonica) and two US-based companies, are reported to be interested.

However, an Iusacell agreement could be scuppered by Salinas, who owns 50% of Iusacell and said on Wednesday that his stake was not for sale. TV giant Televisa owns the other half of the cellco. If Salinas stands his ground, and Televisa does not sell, that might force Telefonica to focus on the America Movil assets. Either way, it is likely that Mexico will end up with a weakened but still dominant market leader, a strengthened Telefonica, and a third player - either Iusacell or a new entrant.

Salinas wrote on Twitter that Telefonica "wishes to buy Grupo Salinas's stake in Iusacell. It is not for sale. I am optimistic about Iusacell's future. We will keep investing to grow." Of course, he may just be looking to drive a hard bargain, while Televisa is keeping its cards close to its chest. It acquired its 50% stake in 2012, when Iusacell was valued at $3.2bn, and has said it will wait for the results of the current regulatory review before deciding whether to invest further in the mobile operator, or potentially sell its stake.

Mexico accounted for just 2.8% of Telefonica's revenue in 2013, according to Bloomberg, less than Argentina, Chile, Venezuela, Peru and Colombia.


Small cells key to public safety's shift to LTE July 31 2014

Mobile operators see strong opportunities with emergency services, and portable small cells will be an important enabler

By Caroline Gabriel

While we wait for large-scale metrozones of LTE small cells to materialize, there is a less prominent layer of activity going on, as these platforms are adopted for vertical market use. Here, in sectors such as public safety or industrial installations, business cases can be more obvious and budgets more forthcoming to adopt a small cell approach.

New research from Frost & Sullivan found that, from this year, there will be a significant uptick in adoption of LTE by public safety and emergency response agencies, especially in Europe. Many will lack dedicated spectrum, so there will be the opportunity for mobile operators to build out safety network in their airwaves. In many cases, such projects will include a different approach to network planning from that in consumer broadband, with a need for flexible, rugged and ad hoc base stations.

Another consideration is the coexistence of LTE with dedicated networks such as Tetra, which is still being upgraded and is likely to be in use for another decade or more. LTE replacement of Tetra will depend on full standardization and acceptance of voice over LTE in this space.

"MNOs and LTE vendors across Europe are partnering with their counterparts in the traditional professional mobile radio space to address this specialized market," said Nye. "Operators must assure potential customers that they will make the necessary investments in LTE coverage, resilience, capacity and functionality, even outside densely populated areas."

Small cells, especially highly portable ones, will be an important way to provide that assurance, say many operators - some of whom see more near term opportunities in specialized vertical markets than in their mainstream HetNet plans. Vendors like Purewave and Tektelic are making headway in sectors like public safety, and a new alliance between chipmaker Cavium and virtualized packet core supplier Quortus is targeting a similar approach.

Cavium plans to embed Quortus's evolved packet core, which can be deployed in software on many types of off-the-shelf hardware, on its Octeon Fusion SoCs for small cell base stations, along with LTE stack software.

That will enable low cost, low power mini-base stations to be created by OEMs or ODMs, and rapidly deployed on-demand, without the need to connect to a remote centralized mobile core. Target applications include emergency services and military activities, where communications need to be established and maintained even when there is no access to traditional infrastructure.

Quortus CEO Andy Odgers said in a statement: "The Octeon Fusion provides significant processing capability with very low-power usage. When combined with our EPC it can support a full mobile network in a package small enough to hold in the palm of your hand."


Sony squeezed in Q2 smartphone shake-up July 31 2014

Huawei and Lenovo snap at the heels of the big two, as Apple and Samsung see their lead eroded

By Caroline Gabriel

The second quarter smartphone market figures are coming in, and they indicate that trends, seen in recent months, are continuing - erosion of the Samsung/Apple near-duopoly, rising share taken by Chinese vendors, and heavy pressure on other players such as Sony.

According to IDC figures, Samsung and Apple lost some share, while Huawei and Lenovo were elevated to third and fourth positions, respectively, in the Q2 league tables by unit sales. LG was in fifth place. Its share was virtually stable year-on-year, but slid by a significant 0.1 percentage points - taking it below the 5% mark which is often seen as psychologically critical for mass market success.

Only four suppliers are above that level now, as the market consolidates around a few big brands, among which the Chinese majors are increasingly important. Below the water line, there is an increasingly fragmented picture, however, with a host of emerging market vendors taking advantage of the overall market shift towards emerging economies, featurephone transition and low end smartphones.

In the quarter, Samsung still held 25.2% of total sales, but this was down 7.1% year-on-year, while Apple slipped from 13% to 11.9%. Huawei was up from 4.3% to 6.9% and Lenovo from 4.7% to 5.4%, in a segment which grew by 23.1%, to reach a record shipments level of 295.3m units.

"As the death of the featurephone approaches more rapidly than before, it is the Chinese vendors that are ready to usher emerging market consumers into smartphones," commented IDC analyst Melissa Chau in a statement. "The offer of smartphones at a much better value than the top global players but with a stronger build quality and larger scale than local competitors gives these vendors a precarious competitive advantage."

This causes problems not only for the big two - at their lowest market share levels for years - but for former giants such as Sony, now relegated to the 'others' category. Some are resorting to selling themselves - Motorola will soon be part of Lenovo, Nokia has gone to Microsoft - but Sony's CEO Kazuo Hirai has put mobile devices, along with content, at the heart of his plan to restore profitability.

In fact, some of his plans are coming to fruition, as Sony reported a surprise profit in its fiscal first quarter. But this was driven by strong demand for the PlayStation 4 console and improved performance at its movie business, not by smartphones. The company posted net income of ¥26.8bn ($261m), where analysts had been expecting a loss of about ¥11bn. Operating profit almost doubled year-on-year to ¥69.8bn.

However, Sony reduced its sales forecasts for smartphones, as well as TVs, while announcing a joint venture in displays with three Japanese partners - Panasonic, Japan Display and Innovation Network. The mobile products unit recorded a loss of ¥2.7bn, compared with a profit of ¥12.6bn a year earlier. Sony expects to sell 43m smartphones this year, down from its previous forecast of 50m.


Ericsson seeks revenues in many new markets July 30 2014

MetraTech purchase expands its BSS/OSS to verticals and IoT, while deals in Australia and Chile include satellite and transport

By Caroline Gabriel

Ericsson's recent quarterly results were solid, but still betrayed the vulnerabilities in the company's traditional business in mobile-focused infrastructure and services. Unpredictable carrier investment cycles, rising competition and price pressures, challenges in China - all these factors have been pushing the Swedish giant to expand into new markets, including wireline and TV carriers and the internet of things. This week has seen three examples of how Ericsson is seeking to reinvent itself, so that if it finally loses its mobile crown to Huawei, it will have other tricks up its sleeve.

First, Ericsson announced the acquisition of MetraTech, a US-based provider of billing, commerce and settlement systems based around metadata. Nothing new there, it seemed, since the larger company has been filling out its billing and OSS/BSS portfolio for years. But this was different, because the deal is not focused on carriers, mobile or even wireline, but on areas where there is greater growth in network platforms - vertical markets, especially utilities; and a broader set of providers targeting smart cities, cloud services and the internet of things (IoT).

No price was disclosed for the acquisition but it includes all MetraTech's 140 staff and contractors. As well as expanding Ericsson's US business, which has been its keystone since it acquired the remnants of Nortel, the purchase signals the firm's intention to move aggressively towards providers of IoT and XaaS (everything as a service) offerings.

The company said it would have an enhanced ability to support "customers, partners and suppliers in multiple industries and accelerate the creation and delivery of new value added services. Customers can create fluid, personalized, multi-party agreements to meet unique business needs," said the statement.

"For a range of industries, thriving in the Networked Society means having the ability to quickly support new revenue models and shift strategies as fast as customer and partner needs evolve," said Per Borgklint, SVP and head of business unit support solutions. "MetraTech's metadata-based billing solutions strengthen our extensive OSS and BSS portfolio and billing capabilities across a range of sectors, helping us extend our leadership as we support a world with increasingly more connections."

Meanwhile, on the other side of the world, Ericsson has signed the latest in a string of managed services deals. These are vital to its revenue strategy, but this contract, with Australia's NBN (National Broadband Network) organization, is focused mainly on fixed wireless and satellite rather than the mobile systems with which the Swedish vendor is so familiar.

The deal, worth as much as Aus$300m, is to deliver and support services across regional and rural Australia, extending some existing fixed wireless agreements until 2018 and operating third party ground systems for the Long Term Satellite Solution (LTSS), as well as customer service activation. The NBN non-cellular services are planned to cover one million households which are not well covered by wireline or LTE broadband.

Ericsson will help the government-owned NBN (created to implement the state national fixed broadband plan) to meet expected peak installation rates of up to 15,000 households per month in rural Australia in 2016, and it will also manage the migration of 42,000 users of the current, interim satellite system to the LTSS. NBN is charged with bringing fixed broadband to every household, and it says up to 7% of the population will not be accessible with its wireline roll-out. It hired Ericsson in 2011 to build and manage its fixed LTE network.

The contract indicates how next generation networks, especially those targeting rural or emerging markets, will increasingly pull together a variety of available technologies and spectrum bands, including cellular, wireline, WiFi, satellite and fixed wireless - and these will all need to be managed and, in many cases, integrated, an opportunity for managed service providers.

Greg Adcock, NBN's COO, said: "This agreement will enable greater efficiencies and consistency of network management across both our fixed and satellite ground networks."

Another important area of expansion for Ericsson is the smart city, and its latest contract is with Chilean telco Entel. The two companies have signed an agreement wtih the government transport agency, Subtrans, to develop tools to optimize the management of public transportation, initially in capital Santiago.

In a joint pilot, Ericsson will provide a tool allowing Subtrans to monitor the movement of Entel users in the Transantiago bus and metro system. This data will be used by Subtrans to manage the system's resources in a more efficient way, and to identify areas where improvements are needed to the system.


Twitter enters deep learning race with MadBits July 30 2014

As web giants fight to define next generation user experience and expand big data potential, Twitter buys imaging AI start-up

By Caroline Gabriel

One of the hottest areas for M&A this year is deep learning, as the web giants build up their engines to drive new revenues in new-style search, micro-targeted advertising and big data.

Twitter is the latest to move, acquiring Madbits, a deep learning computer vision start-up. This is part of a race to create the best back end system to deliver brand new user experiences, with the successful companies aiming to define the next generation web interface as Google did with search, and to enable new revenue streams based on intimate knowledge of each user.

These experiences will be deeply context-aware; will support new and intuitive search and query, with voice, gesture and virtual reality interaction; and will provide extremely detailed levels of data about each user, which will then support revenues from analytics and targeted promotions.

IBM's Watson, and the engines behind Apple Siri and Google Now, are among the early movers, while Facebook has been active on the user experience side with its purchase of virtual reality firm Oculus VR. Google (with DeepMind), Yahoo and Dropbox have also made acquisitions in deep learning and machine vision, and Microsoft and Baidu are investing huge sums, so it is no surprise to see Twitter joining the race - initially to support specific new applications in image recognition, but with the potential to create a whole next generation experience.

Its new acquisition, Madbits, has been in stealth mode and was founded by Clement Farabet and Louis-Alexandre Etezad-Heydari, who had worked under Facebook's artificial intelligence director Yann LeCun, also a professor at New York University.

Madbits provides a top level outline of its approach on its website, indicating a focus on understanding and analyzing images. It says: "Over this past year, we've built visual intelligence technology that automatically understands, organizes and extracts relevant information from raw media. Understanding the content of an image, whether or not there are tags associated with that image, is a complex challenge. We developed our technology based on deep learning, an approach to statistical machine learning that involves stacking simple projections to form powerful hierarchical models of a signal."

Image recognition and analysis will help Twitter add image search as well as understanding what its users are tweeting about, and in what context.

The start-up says it has prototyped and tested about 10 different applications, and was on the point of commercial launch when it entered talks with Twitter, "a company that shares our ambitions and vision and will help us scale this technology".


Vodafone results show Europe stabilizing July 25 2014

Long downturn in its home region may be coming to an end, but growth all comes from emerging markets

By Caroline Gabriel

Vodafone's quarterly results showed a familiar pattern, with emerging market growth somewhat offsetting European slowdown, but there are also signs that the long stagnation in its home region may be ending.

The first half of 2014 may mark "the low point of its European trends", Macquarie Research analyst Guy Peddy told Bloomberg. Performance there has stabilized, though Vodafone is still having to pour large sums into its networks to shine in a region which is both recession-struck and hugely competitive. "The company is playing network catch-up and investing heavily," said Peddy. Vodafone will invest £19bn ($32bn) on its network improvements over the next two years.

The UK-based giant pleased the City of London with a smaller than expected decline in revenue in its first fiscal quarter, mainly driven by burgeoning mobile usage in India and parts of Africa. Overall, service revenue was down 4.2% year-on-year to £9.4bn, slightly better than the 4.4% drop predicted by analysts. Total revenue was down 4.4% to £10.2bn, excluding acquisitions and currency fluctuations.

In Europe, which brings in about 65% of service revenue, the operator said there was "evidence of commercial improvement" in Germany, Italy and the UK, although all three suffered declines in revenue. Overall, European service revenues were down 7.9% year-on-year, with Italy recording a 16.1% fall.

Germany, the biggest market by revenue for Vodafone, is starting to recover from last year's network quality problems, but Spain is still showing few signs of turnaround as prolonged economic downturn drives customers towards cheaper devices and plans. Vodafone recently announced the acquisition of local fixed line provider Ono, as part of its region-wide strategy to invest in wireline infrastructure and create a quad play to rival that of cableco Liberty Global.

"Our performance is beginning to stabilize quarter-on-quarter in several of our European markets, with customer appetite for 4G services clearly growing," said CEO Vittorio Colao in his statement, sending the stock up 2.1% to 202p (though it has lost 33% so far this year, before the results).

The operator's Africa, Middle East and Asia business group saw a 4.7% rise in service revenues and the largest market in this division, India, enjoyed the best performance, with the shift to 3G spurring a 10.3% revenue improvement.

The African regional operator Vodacom, in which Vodafone holds a 65% stake, said revenues were up 4.3%, driven by a 23% increase in data income, especially in Tanzania, Mozambique and Lesotho.

Vodafone had warned in May that profits would be hit during the full fiscal year, which ends in March 2015, by the huge Project Spring infrastructure upgrade plan as well as European price wars. It has forecast that EBITDA will fall to a range of £11.4bn to £11.9bn, down from £12.8bn last year.

In the face of Vodafone's acquisition spree - which is reminiscent of its glory days under Chris Gent and includes the major Kabel Deutschland purchase - credit ratings agency Moody's recently stripped the firm of its A3 status, reducing it to Baa1, the third lowest grade. Moody's commented in a statement: "The renewed investment focus from Project Spring could turn out to be a powerful competitive advantage for Vodafone, but the company will have to demonstrate that it is able to regain pricing power from this network differentiation strategy."


SK Telecom to deploy Elastic Cell by 2016 July 25 2014

Working with Ericsson, Korean operator builds improved performance into CoMP technology to enhance cell edge experience

By Caroline Gabriel

Scarcely a week goes by without a vendor, operator or start-up proposing a new architecture for the mobile network. Sometimes these are part of the growing attempts to influence what '5G' will look like, but many are generic changes which could be applied to current networks and then might ease the transition to a future platform. Small and even-smaller cells, in multiple layers or meshes, and going right down to ad hoc personal cells formed for as long as an individual needs them; virtualized RANs with distributed radios; new approaches to distributed antennas, to update the venerable DAS.

The wave of creativity indicates how fervently operators are looking for ways to harness a wide range of spectrum sources, and eke maximum capacity and flexibility out of those frequencies, in their desperate bid to keep up with data demands while reducing galloping capex and opex costs. But there is also an equally urgent need to improve overall user experience, in terms of capacity and coverage, but also in terms of personalized services - certain quality levels, data speeds and optimized applications automatically delivered by a network aware of each customer's location and preferences, for instance.

That is leading to a change of emphasis in new network designs, from cell-centric to user-centric, as SK Telecom of Korea, often the first to try a new idea, puts it. SK is referring to 'Elastic Cell' a technology which it recently demonstrated with Ericsson, and which it calls a "key enabler for 5G". How anyone can know that, when 5G is not yet defined, is uncertain, but what does ring true is that many inventions which are developed now, and pioneered in current networks, will then feed into the next generation. 5G, Ericsson radio chief Ulf Ewaldsson, and many others, believe must be on a continuum with LTE, harnessing and intensifying trends like smaller cells rather than starting with a clean slate.

This means that many areas of current R&D will remain relevant in the next decade too, if they can be proven to work well and cost-effectively. Elastic Cell is one of many technologies which aims to end the difference in QoS at the cell edge, and to deliver uniform service wherever a user is located. LTE-Advanced features such as CoMP (Coordinated Multipoint) have the same end in view.

SK Telecom says that Elastic Cell (also called Flexible Cell) can boost cell edge data rates by 50%, and it will deploy the system commercially by 2016. It enables multiple cells near the handset to cooperate for every transmission, rather than confining a device to a single cell. A serving base station receives information on nearby cells from the handset and selects a group of cells that can improve the network quality at the edge for transmission, while temporarily turning off other nearby cells that would cause interference.

This approach is not brand new, but builds on CoMP, which also allows multiple cells to work together through joint scheduling and transmission, to improve performance at the edge. SK Telecom has operated CoMP in its LTE-A network since 2012 on the downlink and since April on the uplink. Elastic Cell is seen as a step forward from CoMP, improving the base standard's scheduling, energy efficiency and cost efficiency. Other similar projects include China Mobile's Amorphous Cell.

The trials will feed into the recently announced partnership between SK Telecom and Ericsson to research 5G technologies, and in turn into the European Union's alliance with Korea's R&D agencies for the same purpose.


China casts dark shadow over Qualcomm's outlook July 24 2014

Chip giant beats Wall Street forecasts with quarterly results, but warns of licensing shortfalls in China

By Caroline Gabriel

Qualcomm's quarterly cycle this year is becoming predictable - it warns of problems ahead in China, then delivers strong results anyway. Three months ago, it reported solid performance for its fiscal second quarter, but disappointed Wall Street with a downbeat forecast, largely because of uncertainties in the Chinese market. It predicted fiscal Q3 revenues at the low end of analyst expectations, between $6.2bn and $6.8bn, but in fact, has turned in a sales figure of $6.81bn, up 9% year-on-year. Net income was $2.24bn or $1.31 a share, while non-GAAP earnings were $1.44 a share.

The figures comfortably exceeded Wall Street estimates - analysts had targeted non-GAAP earnings of $1.22 a share on revenue of $6.52bn. However, this was only the second time since 2010 that Qualcomm had reported less than 10% year-on-year revenue growth in any quarter, a sign of the growing competition in its core smartphone processor space.

The cycle of warnings followed by over-achievement is not, in this case, just a corporate tendency to manage Wall Street expectations but a genuine sign of the unpredictability of the Chinese market, on which - like most companies in the mobile food chain - Qualcomm is dangerously reliant. "The company's guidance is becoming harder to achieve given the apparent delays in the roll-out of LTE in China," Bill Kreher, an analyst at Edward Jones & Co, told Bloomberg in April. "In the near term, results may be choppy."

His predictions are proving right, and Qualcomm CEO Steve Mollenkopf admits: "The launch of LTE in China is very important to Qualcomm, and it's difficult to predict." The company is particularly eager to see China Mobile's base convert to 4G, as it has created a TD-LTE iPhone for the carrier, but also because it has effectively been excluded from royalty revenues in the operator's 3G technology, TD-SCDMA.

There are other issues in China however, including probes by the NDRC government body into antitrust and corruption - seen by some as part of a broader assault on the US firm's market and IPR position - and difficulties in getting full revenues out of the complex customer base. In its new quarterly statement, Qualcomm reduced its outlook for the current fiscal Q4, because some Chinese licensees "are not fully complying with their contractual obligations to report their sales of licensed products to us".

It cited "certain licensees under-reporting a portion of their 3G/4G device sales and a dispute with a licensee" as well as possible delays in signing new licences while the NDRC investigation is ongoing.

The gap is significant - while Qualcomm expects 1.3bn 3G/4G devices to ship in calendar 2014, the number that will be reported to it for licensing purposes will be between 1.04bn and 1.13bn, because of "units that we believe may not be reported to us, are in dispute or are currently unlicensed. We are taking steps to address these issues."

Qualcomm president Derek Aberle said on the analyst call that "we are experiencing some near-term challenges in the licensing business, particularly related to China. This is something that we will take care of. "But he added, echoing other unknowables in the Chinese business, "the timing is pretty uncertain".

Licences deliver the bulk (at least two-thirds) of Qualcomm's profits and shortfalls in that area cannot be fully offset by any strong trends in chip sales, which have far lower margins. So the disputes will hit the current quarter - net income in the quarter ending in September will be $1.03 to $1.18 a share, Qualcomm forecast, disappointing analysts, who had looked for $1.23.

However, chips account for most of the firm's revenues and rising sales of high end chips will propel revenues in fiscal Q4 to between $6.5bn and $7.4bn, in line with consensus Wall Street predictions of $7.13bn. In fiscal Q3, Qualcomm shipped a record 225m chips, up 31% on the year-ago period, and the number could rise as high as 245m in the current quarter, which would be a 29% increase. New launches from its two largest customers, Apple and Samsung, as well as Chinese LTE, should boost the second half of the year, though there are fears of those handset giants losing share to lower cost vendors, which may not be Qualcomm customers - especially Chinese manufacturers, which often turn to local suppliers such as MediaTek.

Those competitive shifts, and a general move towards lower cost smartphones, are challenging to Qualcomm and will accelerate its efforts to expand in other markets such as the WiFi home and the internet of things. But those trends are fairly well understood and have been factored into analysis of the US giant for some time. By contrast, the Chinese market, especially the licensing and antitrust issues, are creating nervousness with their unpredictability.

Suji De Silva, an analyst at Topeka Capital Markets, told Bloomberg: "Qualcomm told investors that they had the China customers under contract, that it's all worked out. Now we're getting a sense that it's still a challenge. Qualcomm is trying to monetize its technology and China is a more challenging market."

Qualcomm has been investing heavily in China to build a local ecosystem and strengthen its ties with the big three operators there. Simultaneously with its results statement, it announced a commitment to plow up to $150m into Chinese start-ups at various stages, in the important growth areas of ecommerce, semiconductors, education and health. The activity will be managed by Qualcomm Ventures and the first recipients of funding are Cambridge WoWo and Boohee, in mobile education and healthcare respectively.

The vendor was keen to stress its long term engagement in the Chinese market and said it has had several Chinese investments with successful exits (such as Enorbus (acquired by Walt Disney); Aicent (acquired by TA Associates); and NetQin. Other investments in the country include rising handset star Xiaomi, as well as Thundersoft, MadHouse, CooTek, Yongche, Dolphin Browser, Alo7 and Hawkeye.

With a clear nod to the antitrust investigators, Mollenkopf said in a statement: "Since first introducing our technology and products in China well over a decade ago, Qualcomm has contributed to China's wireless industry through investing in research and development, licensing our advanced technologies, and providing the most advanced chipsets to Chinese companies. Our strategic collaboration with and technical support of the Chinese wireless industry has helped this vibrant ecosystem, helped drive direct and indirect employment, and contributed to economic growth in the entire Chinese wireless industry."


Facebook's growth driven by mobile ad boom July 24 2014

Takes some share from Google as its firms up its business model, focusing on quality and differentiation

By Caroline Gabriel

In the two years since Facebook's IPO, the social networking giant has made significant progress in building a mobile business model. That public offering was blighted by uncertainty about how to turn its vast mobile traffic into gold, but its second quarter results show how far it has come in meeting the challenge. The growth in mobile advertising was credited as the primary factor in a 61% year-on-year leap in second quarter revenue, hitting $2.91bn, well ahead of analyst expectations.

Net income rose 137% on the year-ago quarter, to $791m or 30 cents a share. Profit excluding one-off items was 42 cents, well ahead of Wall Street forecasts.

Advertising and promotions on mobile devices now account for 62% of total advertising revenues, up from 59% a year earlier and almost nothing at the time of the IPO in May 2012. Facebook has been stoking the growth by introducing new options such as video and mobile-specific applications, as well as improving the quality of promotions and analytics.

"Facebook just has a better advertising offering now," Shyam Patil, an analyst at Wedbush Securities, told Bloomberg. "It's a higher return on investment for the advertiser and so they're able to pay more money, increasing Facebook's revenue, and much of that is on mobile." The average advert price has more than doubled over the past 12 months and Facebook is working on new value-added choices. Its Creative Labs initiative focuses on experimental apps and has already produced Paper, which makes a magazine-like experience for the social network, and Slingshot.

It is vital that advertising platforms focus on quality and differentiated options in mobile markets, because actual volume of ad impressions is significantly lower than on PCs, so higher fees are critical. Ad impressions for Facebook were down 25% year-on-year, because of the shift of usage towards mobile devices.

There are warning signs for Google here - the search giant is still driving its revenue growth via high volumes of online ads, while the average price of its adverts fell by 6%. That ratio may be hard to sustain as the shift to mobile usage continues, though of course, Google has massive mobile properties to leverage via Android, Chrome and its many search-related services. Facebook has also been diversifying its business, adding features which do not relate directly to social networking, and acquiring the WhatsApp messaging giant.

Facebook is expected to account for more than 22% of mobile advertising dollars worldwide this year, according to estimates by eMarketer, up from 5.4% in 2012. Google is expected to lose a little share, ending up with just over half the market, down from 52.6% in 2012, while Twitter could reach 3% this year.

"Our tools and the products we're building are working," said COO Sheryl Sandberg, adding that Facebook now has 1.5m advertisers - though the costs of supporting and expanding that platform, with a focus on mobile quality, are rising too. Overall expenses were up 22% year-on-year.

Facebook said it now has 1.32bn monthly active users, up from 1.28bn in the prior quarter, with 654m using the product daily on mobile phones. Revenue per user in the quarter was $2.24, up from $2 in the prior quarter and $1.60 a year earlier.

However, CEO Mark Zuckerberg said on a the analyst call that there is still plenty of work to do on mobile. US customers spend an average of 40 minutes a day on mobile Facebook, which is more than any other application, but is still a small proportion of their total time interacting with websites, computers, phones and TVs - nine hours a day.

"I really can't underscore this enough that we have a lot of work to do and we could take the cheap and easy approach and put ads in and do payments and make money in the short term, but we're not going to do that," he said. "We're going to take the time to do this in the way that is going to be right over multiple years."

That means making some long term bets, such as the recently concluded acquisition of virtual reality headset maker Oculus VR, which could contribute to next generation mobile and search user experiences. Zuckerberg added: "I cared really deeply about the 10-year arc of the company", and said he wants Facebook to "help define the next generation of computing".

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