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As growth potential for mobile services shifts from consumers to 'things', it is increasingly urgent for the 3GPP community to control the networks on which that internet of things will run. LTE in its current form is not fit for purpose, so vendors and operators have been working on ultra-low power variants which could support very long battery life and very cheap chipsets, among other key IoT requirements. However, a major split is looming as Ericsson, Nokia and Intel range themselves against Huawei Qualcomm and a group of major operators.
This week sees a 3GPP meeting in Phoenix, Arizona, where many groups and companies will present submissions for future LTE releases and for the 5G program, which the standards body kicks off at the event. On the IoT front, a stand-off is brewing, which represents most of the great rivalries of the industry - Ericsson vs Huawei; Intel vs Qualcomm. And perhaps more telling, the two camps epitomize, on one hand, the traditional state of affairs in cellular - the old 2G/3G vendors leading the way, with a few US operators in tow - or on the other, the new order, with far heavier input from global operators, and a Chinese giant at the helm.
Huawei has pushed the need for a new air interface for the IoT in Release 13, to get around the compromises inherent in repurposing LTE. Its Cellular IoT 'clean slate' proposal claims to achieve a $10 module cost and 10-year battery life. It has harnessed expertise gained with the acquisition of IoT chipset specialist Neul, and gathered considerable early operator support, including that of Vodafone and China Unicom.
Early versions of the platform have been tested by China Mobile for smart parking, and in future, Huawei sees this '4.5G' technology, as it calls it, converging with LTE and moving forward into 5G.
By contrast, Ericsson's Narrowband LTE (NB-LTE) proposal makes far greater use of existing LTE technologies. This is the main conceptual difference between the two approaches, which the backers say will accelerate adoption by leveraging existing technology investments and ecosystems, and so create superior economies of scale to Huawei's approach, which requires new chipsets and may only work fully with the LTE platform in future releases.
The NB-LTE approach is not the surprise - the timing is. Discussion of a way to reuse LTE standards for the IoT have been rumbling for years. Nokia, Qualcomm and Ericsson have all discussed variations on this theme in GERAN meetings and hustled to get support for their particular approaches.
At the start of this year it seemed that none had got significant backing, and last month the two network vendors joined forces and signed up Intel to support their NB-LTE proposal. Sprint and Verizon Wireless were also part of that initiative. That threw a cat among the pigeons, especially for Huawei, which had been taking the high ground with the progress on Cellular IoT.
Ericsson, it seemed, had mainly been concentrating on its enhanced GPRS proposal for Release 13, so the unleashing of a concerted effort to seize the LTE platform too, at this week's Arizona summit, has come as a surprise. The Swedish market leader has succeeded in getting most of the large vendors - Nokia, Alcatel-Lucent, Samsung, ZTE and Cisco - on its side, along with Intel (though fewer operators than Huawei).
Members of the Huawei camp mutter darkly that the Swedish firm's agenda is to create sufficient confusion to get eGPRS adopted as the main solution for Release 13, and push the question of clean slate vs adapted LTE into Release 14, cancelling out Huawei's early mover advantage.
The end result is perhaps more critical for Intel than anyone else, since it represents its chance, at last, to secure a leadership role in a mobile platform, something which has eluded it. In the early showdowns over 4G standards, it sought to push WiMAX, an alternative to LTE whose ecosystem it could control, but backed the wrong horse. That left it well behind in 4G, but it sees the IoT as its chance to get back into the game on equal terms with Qualcomm.
Intel said it will provide a roadmap for commercial NB-LTE chipsets and product upgrades beginning in 2016. Nokia and Ericsson pledged to provide the required network upgrades to support an extension of existing LTE networks with NB-LTE optimized for low power M2M communication.
"We are excited to collaborate with Ericsson and Nokia on the next wave of wireless innovation to connect the growing IoT market segment, and to further grow the momentum for Intel's LTE portfolio and roadmap with NB-LTE," said Stefan Wolff, general manager of Intel's multi-comms business unit, in a statement.
There will be other proposals on the table but they will be overshadowed by these two. There has already been significant work already on making LTE suitable for the IoT - breathing new life into neglected specs like Category 1, moving towards Category 0 and LTE-MTC - there remains little consensus about the M2M-oriented technologies for the upcoming Releases 13 and 14. Some specialists in low power wide area (LPWA) networks, such as Sigfox and Semtech, are presenting their own systems with a view to converging them with the 3GPP program.
This debate is relevant to 5G too. The Arizona meeting marks the start of the 3GPP's work on those standards, and enhancements made in Release 13 and 14 will point the way to future platforms. For instance, the decision to adopt either a clean slate or an LTE-based path will indicate current thinking in the cellular community and may help shape the 5G conversation about continuity versus clean break - though of course, that one will go well beyond the 3GPP's remit and take in IT, virtualization, licence-exempt spectrum and many other topics.
by Caroline Gabriel, Research Director
So Mobile World Congress (MWC) is over for another year, amid the usual record-breaking statistics (from 93,000 visitors, up 45% on the first Barcelona event in 2006; to 7.55Gbps wireless transmission speeds demonstrated by SK Telecom and Samsung).
There were plenty of eye-catching devices, with the Galaxy S6 Edge undoubtedly the star of the show in terms of headline power, though otherwise the mobile gadget space is fragmenting rapidly. The days of a line-up of remarkably similar large-screened smartphones are over - those handsets are there, at ever cheaper price points, but they jostle for attention with virtual reality headsets, connected clothing, smart coffee makers and whisky bottles, and of course the connected cars (Fiat 500 seemed to be the most popular model on display). Indeed, wearables and associated IoT (internet of things) apps virtually colonized MWC's second venue (its previous home in the Fira complex at Plaza Espanya).
Other headlines were sparked by the companies which, back in 2006, when the 3GSM show relocated from Cannes and changed its name, scarcely figured. Google's MVNO plans, Facebook's extension of its internet.org initiative, PayPal's endorsement of NFC with its acquisition of Paydiant - these were the talking points, drowning out the traditional keynote addresses by the major mobile operators.
Traditionally, the CEOs of the established cellcos have used their conference platforms to lay down their demands to the industry (remember then-CEO of Vodafone, Arun Sarin, warning the LTE sector in 2007 to speed up its efforts or face the WiMAX threat; or trading insults with his Nokia counterpart over 3G delays in 2004). These days, it is the new breed of service providers which are setting the pace - Google's Sundar Pichai may have announced a fairly cautious MVNO plan, but his speech had far wider implications, including the call for full WiFi/cellular convergence, still a divisive theme at an event dominated by the entrenched interests of 3GPP platforms.
Those interests are particularly threatened in the IoT, which was a huge theme of the show this year. As the news that Freescale and NXP are to merge neatly demonstrated, this is a dangerous world for the traditional wireless operators and vendors. It throws up significant opportunities to extend their businesses into new, high growth markets, bringing companies like Freescale and NXP - which had been squeezed badly in the smartphone segment - back to Barcelona with new connected device platforms. But the margins on those chips are low and the IoT is already sparking consolidation, as this semiconductor mega-merger illustrates, with the old-school suppliers and operators needing to huddle together for warmth in a business of scale.
Of course, the carrier's network - wireless RAN, core and transport, and increasingly virtualized versions of those - remains the heart of the serious conversations and trading at MWC. With that in mind, we selected our key themes of 2015:
The shape of the new cell site:
After several years when the ever-shrinking base station was the central theme in RAN discussions, this year saw most of the major equipment vendors announcing major refreshes of their macro layers. Massive MIMO (or at least, 8x8 arrays), carrier aggregation across three bands and including TDD, Coordinated Multipoint and Cloud-RAN - these were the important features of the new macro. This was not 5G, but technologies that will be deployable this year or in 2016 - indeed, it seems more than likely that, however '5G' turns out, it will be focused on the dense capacity layer, while the macro coverage umbrella will remain 4G for decades to come.
Small cells were out in force too, and in a widening variety of form factors. Traditional homogeneous mini-base stations are part of a very variegated approach to the capacity layer. They may form clusters with their own controller (local or virtualized) to support an enterprise or a rural deployment. For the former, the big news was that Cisco will resell the Spidercloud Enterprise-RAN solution, despite its own 2013 acquisition of small cell pioneer Ubiquisys. For the latter, the Small Cell Forum kicked off its latest Release Program, devoted to easing deployment issues in rural and remote scenarios, from villages to oil rigs to temporary situations such as disaster relief. Quortus, with its virtualized packet core, was one of the first to update its portfolio to target this important area, while Parallel Wireless was showing off its rural solution, implemented by EE in the UK.
The classic small cell is expanding its reach, seeking to provide greater value than basic coverage and capacity. Ip.access, another of the founders of this industry, has gone as far as to position its Presence Cell purely as the enabler of big data and e-commerce services - and not necessarily connected to the main network at all. Its approach has convinced Vodafone, which announced that it would deploy the retail-oriented platform.
Then there were small cells which did not follow the traditional architecture. Stripped-down antenna/radio units for Centralized-RAN; separate antennas optimized to work with urban small base stations, from companies like Kathrein and CommScope; a converged WiFi/cellular unit from Alcatel-Lucent; hosts of carrier WiFi access points and management platforms as well as lower-power DAS solutions. This is a segment where all options are open, and in which operators will pick and choose the solutions which suit their individual spectrum, business model and capacity requirements.
The virtualization of the RAN is a more distant prospect, for most operators, than the lower risk decision to run a packet core or even a CPE as software on off-the-shelf hardware. However, some pioneers were demonstrating their vRANs, notably Telefonica and China Mobile, and Intel was locked in combat with the ARM ecosystem over the market for high performance processors, optimized for C-RAN servers and accelerators, as the industry chases a general purpose chip with the horsepower to run high end network processes as well as customized silicon.
Not everything can be converted to software of course, though even the physical elements like antennas and radios will be increasingly software-defined and programmable. Pushing that trend to its extreme was Cambridge Consultants, which has developed the IP for the first all-digital radio transmitter, Pizzicato. Unlike conventional software defined radio, it has no analog components, which allows many radios to work together without interference. In the first trial, Cambridge Consultants created 14 simultaneous cellular base station signals at low power, and with the radios "squashed together in a way that analog doesn't tolerate". Such solutions can be programmed to generate manhy combinations of signals at any frequency in an adaptive way. The Pizzicato transmitter consists of an integrated circuit outputting a single stream of bits, and an antenna.
Of course 5G was a massive talking point, though outside the conference halls and the big vendors' glossy demonstrations, there was less hype than expected about the next generation of wireless, with most operators more focused on technology they could deploy in the next 1-2 years, and eager to wait for key decisions at the World Radio Conference in November, and at the 3GPP and other standards bodies, before getting too excited about 5G. Many alliances were formed and roadmaps laid down, but the most tangible aspect of the discussion was the use of millimeter wave spectrum, in which there were many demonstrations for access and backhaul. The high frequency bands are almost certain to play a key role in next generation wireless, and like many supposed elements of 5G, they will start to have a real impact far earlier, as seen in technologies like 60GHz WiGig and some small cell backhaul solutions, notably InterDigital's Peraso baseband system-on-chip for this market.
There was considerable excitement about LTE-LAA (Licensed Assisted Access), which uses 5GHz spectrum for supplemental downlink to a licensed-band 4G network. Although it will not be standardized until next year, supporters like T-Mobile and Qualcomm showed off their plans, along with a companion technology which aggregates a 5GHz WiFi carrier to LTE. Cellular players were trying to dampen down talk of colonizing licence-exempt spectrum, and stressing that LTE and WiFi could coexist peacefully, both in technical terms and in carriers' business models. However, while LAA is clearly a small cell play, given the high frequencies and low power limits involved, some were arguing that the industry would do better to focus on getting 3.5GHz standardized as a specific small cell band, avoiding WiFi showdowns and the quality challenges of unlicensed spectrum.
As noted above, the IoT was an important theme, but given the nature of the event, there was a particular focus on LTE solutions to support IoT applications, and the question of whether these will prove viable as alternatives to WiFi or specialized long range networks such as Sigfox or LoRa. Huawei was demonstrating its contributions to future LTE-M standards, while the LTE-only baseband specialists, such as Sequans and Altair, have a major opportunity to push 4G-only solutions into a mass market. While the 3GPP works on LTE Category 0 as the underpinning of LTE-M, for now the vendors have resurrected Cat-1, whose low data rates made it a Cinderella specification in the broadband world, but whose ultra-low power consumption now makes it a candidate for the cellular IoT. Sequans, Ericsson and Verizon announced that they had run tests on a commercial LTE network, delivering 10Mbps data rates at very low cost and power, and with peaceful coexistence with higher-powered LTE devices.
The new operators:
Facebook and Google both tried to paint pictures in which they had ongoing close alliances with cellular operators, but they managed to visualize a world in which the MNO's role was severely constrained. They are driving new approaches to the network - full WiFi/cellular convergence; harnessing of LTE-Broadcast for social media as well as content; dynamic spectrum allocation on-demand to hundreds of providers; low cost delivery to the 'next billion' world inhabitants. All of these examples see the web giants becoming less over-the-top and actually shaping the network of the future, with the cellcos just providing part of the plumbing, however important that part. The vision will be supported by virtualization and the ability for cloud platforms to support a new generation of network as a service concepts, spanning WiFi, LTE and other connections, and eventually assigning capacity dynamically to large numbers of MVNOs. That is the end game for platforms like XCellAir, which has been spun out of InterDigital. Such services could be run by traditional operators, as AT&T's Domain 2.0 roadmap clearly envisages, but they could equally be controlled by web or IT majors.
The new operating systems:
It isn't all going Google's way though. Android dominated a show in which Apple plays not part (except in everyone's conversations), but the search giant is struggling to control and unify the user experience as large device and service providers create their own user interfaces and developer platforms. Amazon AppStore broke the 400,000 apps mark, for instance, boasting of "huge progress" with its alternative to Google Play. And as smartphones morph into many new types of connected device, many of them driven from the cloud, there may be the chance for different operating systems to break the Android/iOS duopoly. There was considerable interest in the mobile implementations of Windows 10 from Microsoft, while start-up options like Jolla's Sailfish and Mozilla's Firefox Mobile were looking, for the first time, like credible platforms with operator support, not just bright open source ideas.
By Caroline Gabriel, Research Director, Maravedis-Rethink
The latest R&D project in 60GHz spectrum comes from Samsung, which can transfer a 1Gbyte movie in three seconds. However, as the speed wars heat up in WiFi, all these data rates are going to need backhaul support, an issue Broadcom and others are seeking to address through new Ethernet standards.
The race to break speed records in WiFi is almost as intense as it is in cellular, and Samsung is a prominent name in both. The Korean firm has been demonstrating ‘5G’ prototypes hitting gigabit speeds, but WiFi can support even higher data rates, and the company says it has achieved up to tenfold increase on current speeds.
In both WiFi and cellular R&D, the key to blistering speeds is usually the combination of techniques such as advanced MIMO, with high frequency spectrum. Samsung says it has developed a version of WiGig (the WiFi-like standard for the 60GHz band) which boosts the current maximum theoretical data rate for a consumer device fivefold – and in terms of real world average speeds, the gap is 10 times.
The prototype system enables a 1Gbyte movie to be transferred in under three seconds and uncompressed high definition video to be streamed in real time. Like other next generation WiFi efforts, Samsung says its technology removes the gap between theoretical and actual speeds, and of course it will hope that its breakthrough will give it an influential position in emerging standards, as well as differentiation for its own future products.
“Samsung has successfully overcome the barriers to the commercialization” of the 60GHz WiFi technology, claimed Kim Chang Yong, head of a Samsung R&D center, in a statement. “New and innovative changes await Samsung’s next generation devices, while new possibilities have been opened up for the future development of WiFi technology.”
Amid rising competition in its heartland smartphone business, Samsung is investing in R&D in many areas which could extend its business model, including software and media platforms, enterprise platforms and cutting edge infrastructure for ‘5G’, which is expected to include technologies derived both from LTE and WiFi. The first products to be targeted with 60GHz WiFi are likely to be audiovisual home and mobile media devices, telecoms infrastructure and medical systems, said Samsung.
Samsung’s rivals are all working on enhancing WiFi for higher speed and better quality of experience in future. For instance, Huawei recently demonstrated 10Gbps connections in conventional 5GHz spectrum.
However, the faster WiFi gets, the more challenging its backhaul issues will be. With that in mind, Broadcom, HP and Cisco are drumming up interest in dramatically speeding up gigabit Ethernet, to keep up with the pace of change in WiFi.
The two giants claim there is a growing need for standard physical layers running at 2.5Gbps and 5Gbps, to fit between the current Gigabit Ethernet standard and the high end 10Gbps platform. The standard would cover ranges of 100 meters over Cat E twisted pair cabling, so that changes to cable infrastructure would not be required as they would for 10Gbps and above.
The main reason is the rapid increase in the speed of WiFi. Enterprise and hotspot WLANs are adopting the latest 802.11ac iteration, and its gigabit speeds are threatening to drown the access points’ wired Ethernet backhaul links.
The two companies are proposing the formation of a study group within the IEEE 802 effort, focused on a Next Generation Enterprise Access Base-T PHY. This will get its first hearing at the IEEE 802 plenary in San Antonio, Texas on November 3-6. The initiators of the would-be study group are Yong Kim, senior technical director at Broadcom, and David Law of Hewlett-Packard, chair of the 802.3 working group, and Cisco has also lent its support.
They say in their invitation: “This is a call for interest to initiate a Study Group to explore the need for one or more new Ethernet speed(s) between 1Gbps and 10Gbps over balanced twisted pair cabling. We believe there is a market need, driven by IEEE 802.11ac wireless access points, to support higher than 1Gbps Ethernet rates at a 100m reach. Higher performance end devices like desktop and laptop PCs, as well as other enterprise applications for Ethernet, will also benefit from the new data rates provided by this work.”
John D'Ambrosia, a Dell fellow and veteran of Ethernet standards efforts, told EETimes there was significant interest and the study group was likely to be approved. "I wouldn't be surprised to see a dual-rate effort come out of this," he commented.
There is also work going on far higher up the Ethernet performance scale, in the area which feeds into Carrier Ethernet and mobile backhaul platforms. A de facto standards alliance was formed in July to look at 25G and 50G Ethernet, but the IEEE quickly responded with its own study group, focused on the same data rates, a few days later. These different efforts highlight the diversity of applications for Ethernet these days, requiring a faster development cycle and a wider variety of speeds. "People have removed the barriers of traditional 10x Ethernet upgrades,” said d’Ambrosia.
Meanwhile, Ethernet PHY specialist Aquantia is getting in early, and in time-honoured fashion seeking to create a technology in advance of an IEEE standards effort, which could then form the basis for that standard. Its new AQrate range supports 2.5G and 5G rates over 100m of Cat E twisted pair cable. The 28nm parts are based on Aquantia's existing 10G Ethernet PHY, which is in production and work in conjunction with FPGAs and IP from Xilinx.
Investors pleased with improvement in operating margins while CEO Combes says Shift Plan on track
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."
Long downturn in its home region may be coming to an end, but growth all comes from emerging markets
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."
Chip giant beats Wall Street forecasts with quarterly results, but warns of licensing shortfalls in China
By Caroline Gabriel
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."
UK firm reports seasonal slowdown, but licensing revenues up by 42%, pointing to stronger growth ahead
ARM's revenues were up 17% year-on-year to $309.6m (though top line growth in UK pounds was 9%, to £187.1m), which was solid for the time of year, though slower
The UK company said its adjusted operating margin improved to 48.9%, from 48.6% in the year-ago period and earnings per share were 3.91p, from 0.75p. The results included an £8.4m restructuring charge connected to layoffs of 130 staff.
The biggest contributor to revenue growth was licensing, up 42% in dollar terms to $146.1m. ARM signed 41 new licences during the quarter. Overall shipments also rose in the quarter, up 11% year-on-year to 2.7bn chips.
By contrast though, royalty revenue grew by only 2% in dollar terms, and the company blamed slowing demand for smartphones because many operators are trying to sell off 3G models while transitioning to 4G. That has created some slowdown at the high end, amid a general rebalancing of the handset industry's growth towards emerging markets and lower cost smartphones.
CEO Simon Segars acknowledged, on the analyst call, that royalties had been hit by "seasonal trends in inventory management in parts of the electronics supply chain" as carriers worked through their 3G inventory. However, he believes this trend will create a shift towards higher end and 4G models in the second half of the year and pointed to a "healthy pipeline of opportunities", which should boost revenue growth in the third and fourth quarters.
"Our continued strong licensing performance reflects the intent of existing and new customers to base more of their future products on ARM technology," Segars said. "This bodes well for growth in ARM's medium and long term royalty revenues."
However, many analysts are cautious about ARM because of its exposure to smartphones, a segment in which prices and growth are slowing. Jasmeet Chadha of Bernstein Research told the Financial Times: "Long term, the view across the market has been that smartphone growth will slow. Half of ARM's business is exposed to smartphones. There are opportunities in the internet of things and wearables, but these will ramp over several years and are small today and do not yet represent half of ARM's business. Structurally, the group's royalty growth is likely to slow." The rising threat of Intel in core markets, and the strength of the British pound, are also negatives around ARM at the moment.
But the firm has been investing huge efforts in diversifying its business and building on its dominance in handsets. It has released processor designs, and announcing licensing deals, in several new areas. Its first 64-bit platform is targeting high performance devices and servers, while it has been expanding its microcontroller and ultra-low power architectures for the internet of things.
The biggest bellwether of the mobile processor market, Qualcomm, reports its quarterly results on Wednesday. Like ARM, it expects the second half of the year to be significantly stronger than the first as it deals with falling handset average selling prices and the 3G-4G transition in China and other key markets.
Turkcell uses tri-carrier 3G+ technology to boost speeds even where it is not yet upgrading to LTE
Just as EDGE continued to be enhanced and deployed well into the 3G era, so HSPA technologies have their own roadmap and will complement LTE for many operators - a pattern common in parts of Europe has been to use 4G for urban metrozones while keeping 3G+ for wide area data coverage; other carriers intend to keep stretching their 3G limits in order to defer any investment in 4G for a few years. Ericsson, which has significant market share and IPR in the 3G technology family, says multicarrier HSPA will be an important complement to LTE and will provide "a mobile broadband experience of comparable quality".
The demonstration took place on a commercial network owned by Turkcell, using a Qualcomm-powered smartphone. The three-carrier capability will be included in Ericsson's software release 15A. It is engineered to increase user downlink rates by up to 50% throughout the cell, (compared to single carrier), regardless of network load. This test was performed in the 2.1GHz band, using three 5MHz carriers for downlink and two for uplink.
Turkcell currently has a dual-carrier HSDPA network supporting speeds of up to 43.2Mbps and 5.76Mbps.
3C-HSDPA is designed to allow simultaneous downlink transmissions on up to three 5MHz carriers to a single user. It supports both single-band and dual-band transmission.
EUL-MC, which is included in Ericsson software release 14B, increases uplink speeds by up to 100% by supporting simultaneous uplink transmissions on two 5MHz carriers, regardless of load conditions, and applying to all areas of the cell. Both these HSPA features should be commercially available in devices towards the end of this year.
As Korean leader issues shock warning of 24.5% drop in operating profit, HTC turns in 80% leap in net income
Samsung had indicated that this could be a tough quarter amid intensifying smartphone competition, as well as ongoing challenges in its TV business. However, the scale of its forecast operating profit decline - 24.5% down from the year-ago quarter - surprised analysts. This was the third quarter of falling operating income in succession.
Guidance on sales figures remained unchanged from its April estimate - consolidated Q2 sales should be KRW52 trillion ($51.4bn), down from KRW57.5 trillion last year, with operating profit of KRW7.2 trillion ($7.1bn). Samsung blamed the weakness on a strong Korean won - at a six-year high against the dollar - and a decline in smartphone and tablet shipments. In addition, it has incurred additional marketing expense to reduce inventory.
The company added to its comments, saying that profits were being hit by increased competition at the low end, not just from Chinese vendors but from European manufacturers. And it also sees slow growth in the handset market as a whole, though it expects a rebound later in the year.
The telecoms unit, which includes the handsets and generates more than 70% of earnings, is likely to see operating profit of KRW5.1 trillion, down from a record KRW6.7 trillion in Q313, on sales of KRW31 trillion, analysts estimate. Samsung will publish the official results and divisional breakdown later in the month. IBK Securities calculates that the vendor's total smartphone shipments fell to 78m units in Q2, from 87.5m in Q1.
The display unit is also under pressure, and pundits predict it will see a 76% drop in operating profit in Q2, to KRW270bn, although analysts expect some improvement in the consumer electronics business, which includes TVs and home appliances. And the chip division is expected to double its profit to about KRW2.1 trillion.
New products and demand for displays will drive better results in the third quarter, Samsung said in its statement. "Samsung earnings will rebound in the third quarter, largely driven by explosive demand for 4G smartphones in China," Claire Kim, an analyst at Daishin Securities, told Bloomberg. "If Samsung can maintain at least 20% market share in that segment, it will see higher smartphone sales during the quarter when the significant impact from Apple's new devices isn't yet expected."
Such comments indicate the huge importance of China, the world's largest smartphone market, to all vendors, and Q2 is seasonally weak there. But of course, Samsung also faces non-seasonal pressures, such as the increasingly impact of Chinese manufacturers like Lenovo and Xiaomi.
Meanwhile, HTC just beat market estimates with its Q2 results, and delivered one stand-out figure, an 80% year-on-year leap in net profit to NT$2.26bn (US$75.6m), ahead of the NT$2.09bn predicted by analysts. HTC also posted an operating profit of NT$2.43bn after three successive quarters in the red on this front. But revenue fell to NT$65.06bn, only just within the company's guidance range of NT$65bn to NT$70bn.
The profits rise vindicated CFO Chang Chialin's pledge, made in May, that the new flagship smartphone, the HTC One M8, would propel its vendor back to profit in the June quarter. The M8's sales are still rising after its launch in March and CEO Peter Chou said it had achieved "positive customer response". However, the profits improvement is also down to the ongoing cost reduction program as well as major efforts to address the supply chain issues and component shortages that dogged recent HTC launches. Chou said: "We have dramatically improved our operational efficiency and supply chain readiness to ensure immediate availability on the launch day."
All three operators now have paired and unpaired spectrum, but will wait until 2015 for commercial FDD, and 2020 for sub-1GHz
However, it seems likely they will have to wait until 2020 to gain usable spectrum in 700MHz, coveted for its long range and indoor penetration, which greatly reduces the cost of rural build-outs and initial, coverage-driven LTE projects.
Initially, then, all three companies will have higher band spectrum, both paired and unpaired, though it could take a year or even two for the FDD trial licences to be converted into commercial ones (there was a wait of about two years for the same process in TDD, though the huge 'trial' networks which China Mobile constructed during that time were hardly just testbeds.
The length of the wait will be significant for the two smaller operators, whose 3G networks are FDD, and which would prefer to lead with paired frequencies in LTE too, adding TDD at a later stage, for capacity, when the ecosystem has matured. However, Mobile's lobbying for TDD-first means they will have to adopt a hybrid TDD/FDD strategy, a fact which should stimulate the equipment and device ecosystems - another key Mobile objective - but could also make a RAN sharing deal between all three players more likely.
Talks about such an agreement are reportedly ongoing, and the long wait for 700MHz, which improves cost efficiencies for LTE, may be another incentive to come to a deal.
Last week, China Telecom was granted a trial FDD licence so that it can start building networks in major cities immediately, and Unicom and Mobile quickly received their own similar allocations. The bands were not specified but was certainly not sub-1GHz.
China faces the same tensions and trade-offs between the broadcasters, incumbent in the 700MHz spectrum, and the mobile operators, eager for the digital dividend in frequencies which are particularly suited to affordable wide area coverage. The head of China's broadcasting regulator, GAPPRFT, Jiang Wenbo, said this week that it will not complete the handover of the 700MHz spectrum until 2020.