For enquiries please call
+ 1 305-865-1006

Wireless Infrastructure Newsletter

Devices weigh on both Apple and Microsoft July 23 2014

iPhone and iPad sales disappoint Wall Street and Nokia hits its parent's profits, but both firms thrive in enterprise

By Caroline Gabriel

Perhaps this is the shape of the future. Rivals Apple and Microsoft reported solid quarterly results, but handsets were not the star in either, while hopes of future growth were focused heavily on enterprise services. Reinforcing the idea that Microsoft's decision to enter the smartphone business with the Nokia acquisition was a miracle of bad timing, it seems that companies must look beyond the competitive and saturating cellphone space for their growth.

For Apple, iPhone and iPad sales were strong by most firm's standards, but disappointed Wall Street. As reports mount up about the vendor making record orders for next generation iPhones from its suppliers, the slump in sales of the current models, as users anticipate the new offerings, may be more marked than usual. CEO Tim Cook said there were new products which "we can't wait to introduce", but gave no details. CFO Luca Maestri commented: "We're seeing some purchase delays and we've reflected that in our guidance. It happens. We have to live with that."

Despite hopes for the 'iPhone 6' and other rumored launches like the iWatch, the most discussed source of hope for future growth was the new and important enterprise alliance with IBM, which could ensure that Apple retains its market lead over Android in that segment for the long term, and gains some of the cloud-based services it lacks.

Enterprise cloud was the shining star of Microsoft's quarter too, though CEO Satya Nadella will be well aware of the threat from the IBM/Apple tie-up in vertical sectors. Cloud and corporate software drove the software business to exceed expectations, helped by surprising buoyancy in the business PC space, which also helped Intel's quarter. Revenue from Office 365 and the Azure cloud platform doubled year-on-year and were hailed as "pillars of strength" by CFO Amy Hood. She added that commercial cloud products now have an annual run rate of $4.4bn.

Meanwhile, as Daniel Ives of FBR Capital Markets put it, "Nokia continues to be the black cloud over Microsoft". The former Finnish business accounted for nearly $2bn in revenue in the quarter, but also for a $692m operating loss. Nadella says the phone unit is on track to break even on an operating basis in 2016, a long path for a business which already looked non-strategic to its owner only weeks after its purchase was completed.

So the pattern is clear, despite the huge differences between the two firms - by contrast with the high hopes for business and cloud offerings, device sales are not exciting investors.

Apple's fiscal third quarter, which ended in mid-June, saw revenue below analyst expectations, at $37.4bn, rather than the anticipated $38bn, but up 6% year-on-year. Net income was up 12% to $7.7bn and earnings per share were five cents above forecasts, at $1.28. The company sold 35.2m iPhones in the period, up from 31.2m a year earlier, but this was below Wall Street hopes of 35.78m. Likewise, the iPad came in 1.16m units below expectations at 13.3m, down from 14.6m in the year-ago quarter. The iTunes, software and services segment was up from $4.1bn last year to $4.48bn in revenue, but again, below analyst predictions of $4.53bn.

The iPad is a particular concern, as it is now Apple's second largest source of revenue. Cook said sales hit internal targets, but admitted they were below Wall Street expectations. The tablet remains the market leader but is being squeezed by a host of Android models in many price brackets, as well as alternative 'post-PC' form factors such as Chromebooks. It tends to have a longer upgrade cycle than the handset's typical two years, and rarely attracts operator subsidies. More than half of iPads are sold to first-time tablet buyers, a very different pattern from the iPhone, which depends heavily on the upgrade market.

Amid all these factors, the iPad posted its second quarter in a row of declining year-on-year sales, shifting 13.3m units. Cook blamed weakness in the critical US market, on which Apple is always somewhat over-reliant, and a reduction in channel inventory. However, he said on the analyst call: "We're very bullish about the future of the tablet market, and we're confident we can continue to bring innovation to this category through software, hardware, and services." He said there was strong growth in the BRIC economies and in education, and expects the IBM deal to help too.

Overall, almost 60% of sales now come from outside the US. Chinese iPad sales rose by 51% year-on-year, and iPhone shipments by 48%, though despite the distribution deal with China Mobile, Apple remains in fourth place in smartphones in the country. iPad sales were also up 45% in India. "China, honestly, was surprising to us," Cook said. "We thought it would be strong, but it went well past what we thought."

The company said that, in its fiscal fourth quarter, it expects to bring in between $37bn and $40bn in revenue, which fell slightly short of Wall Street estimates of $40.44bn. But the critical quarter will be the next one, when the new iPhone should make its debut in time for the holidays. Anticipation of a large-screened version is rising along with consensus that Apple will need to do something dramatic this time, to fend off Android competition in key markets. The latest results emphasize the company's critical reliance on its handset, which accounts for about 70% of total profit and contributed over $91bn in revenue last year.

"Apple's fortunes are tied to the iPhone," Michael Binger of Gradient Investments told Bloomberg. With the smartphone market becoming crowded and low-margin, that may not be a comfortable position for the company in the years ahead.

At Microsoft, results generally beat estimates, but profit was hit hard by the acquisition of Nokia's devices unit. In its fiscal fourth quarter, the company reported net income of $4.61bn, or 55 cents a share, including adjustments related to Nokia. Without Nokia-related items and taxes, the figure would have been 66 cents. Wall Street had anticipated 60 cents with the Nokia items and 64 cents without, indicating that the acquisition has had a far bigger negative impact on earnings than expected. Nadella recently announced 12,500 cuts to the former Nokia workforce in a broad refocusing of Microsoft, to focus heavily on the cloud and to de-emphasize most devices, and even Windows itself.

Nadella built on those announcements during the earnings call, emphasizing enterprise and cloud achievements and promising that the three main Windows versions - Windows 8, RT and Phone - would converge into one. "We are galvanized around our core as a productivity and platform company for the mobile-first and cloud-first world, and we are driving growth with disciplined decisions, bold innovation, and focused execution," he said in his statement. "I'm proud that our aggressive move to the cloud is paying off."


ARM royalties hit by 3G-4G transition July 22 2014

UK firm reports seasonal slowdown, but licensing revenues up by 42%, pointing to stronger growth ahead

By Caroline Gabriel

ARM reported a seasonal slowdown in its second quarter results, but these were still better than the markets had expected, with pre-tax profit up more than fourfold at £68m (from £15m the year before). The dominant mobile processor IP company expects an uptick in the second half, as does one of its most important customers, Qualcomm, but these smartphone powerhouses know they need to diversify their revenue streams too, to avoid these seasonal dips becoming permanent.

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.


Flurry may help Yahoo get results from mobile-first July 22 2014

Online firm still struggling to turn mobile strategy into tangible growth, buys analytics firm Flurry to aid the process

By Caroline Gabriel

Despite persistent rumors that Yahoo might acquire AOL, CEO Marissa Mayer has more sense, and is staying focused on buying useful mobile start-ups, rather than buying into the old myth that two rocks tied together can possibly float. Her latest prey is Flurry, the mobile advertising and analytics company, which the company hopes will accelerate results from its mobile-first strategy. It will be especially important to demonstrate such progress soon, given a recent disappointing quarterly results report.

While most investors have applauded Mayer's emphatic repositioning of the ageing internet firm around mobility, she can be criticized for a scattergun approach to M&A, snapping up a long list of standalone businesses, often with no significant integration opportunities. That has enriched the content and applications base, and is helping to build a more distinctive user experience, but in the era of big data and personalized ads and content, Yahoo needs to invest more heavily in the analytics which will tie all its purchases together, and help monetize them more effectively.

Flurry, a nine-year old company, started life as an apps developer but then moved into tracking mobile applications in order to support customers' big data and monetization activities. It monitors 500,000 apps and 1.4bn devices a month, and its software is present in an average of seven applications on each of those devices. Its platform is used by 8,000 publishers and 170,000 developers, who are able to gain insights into how their software is being used, and by whom, in order to enhance and monetize it.

This could give Yahoo the kind of analytics to help develop its goal of a streamlined advertising platform with heavy emphasis on personalization, thus tying together some of its other purchases (and enabling it to see which of its various apps are working best).

Interestingly, Mayer has also been talking recently about mobile search, an area where Google and Apple are battling to take the lead in redefining the experience around fine-grained personalization, voice and gesture interaction, and deep contextual awareness. Analytics engines like Flurry's could feed into similar activity at Yahoo, and Mayer recognizes that mobile search needs to be a new experience, and that the firm which captures users' imaginations, as Google did with desktop search, will have huge power in the next generation mobile world. She recently said in a briefing: "We really believe the mobile search experience to be completely different than that of traditional desktop search. There is a clear opportunity here and we are continuing to look at ways to deliver more innovative, more intuitive search experiences on mobile phones."

Financial details of the takeover were not revealed, though reports indicate Flurry went for a nine-figure sum. It has raised about $74m so far in funding and was considered an IPO candidate.

The latest acquisition came just days after Yahoo announced it would buy mobile video start-up RayV, whose technology improves the quality of video streamed to mobile and other online devices.

Since Mayer took over the CEOship nearly two years ago, she has created a new mobile organization and overseen the redesign of most of Yahoo's mobile services, such as Mail and Finance. The aim is to transform the company into a content and applications portal with a heavy focus on streamlining the smartphone web experience.

However, investors' patience is starting to wear thin as the big mobile-first vision fails to translate into quick, tangible impact on the overall business. Yahoo does not break out its mobile revenues, just insisting they are "meaningful", but that indicates that this activity, while strategic, remains a small percentage of the total. The company remains mainly reliant on conventional display advertising, but revenue from that business fell by 7% year-on-year in the second quarter, in results which generally disappointed Wall Street.

Tools like Flurry's may help to speed up progress in delivering results from the mobile strategy. "By joining Yahoo, Flurry will have resources to speed up the delivery of platforms that can help developers build better apps, reach the right users, and explore new revenue opportunities," Scott Burke, Yahoo's advertising technology chief, wrote in a blog post.

Flurry will also help with one of the key objectives set out by Mayer in her keynote address at this year's Consumer Electronics Show. She stressed that Yahoo was in the process of unifying tools to offer advertisers a streamlined and coherent platform, as well as focusing heavily on exclusive content and capabilities for consumers. "A common theme across a lot of what you've seen today is us simplifying our business," Mayer said in her speech. "Simplification has been a guiding force in our approach in reimagining our products, our advertising systems and our future plans."

Her challenge remains a significant one, given Yahoo's lateness in grasping the opportunities of mobile personalization and targeting. Although it has made a string of neat acquisitions - including paying $1bn for Tumblr - the history of the web indicates how difficult it is to differentiate on the basis of content and apps, which are highly susceptible to consumer fashion - there is always a 'next big thing', and Google is better resourced for M&A and product development.

A mobile apps arms race will benefit nobody but the lucky start-ups if the new consumer offerings are not closely tied into an appealing platform for advertisers and other commercial partners, and Google is well ahead in that respect. We can expect Yahoo's mobile shopping spree to continue, but perhaps with more focus on monetization. It has acquired over 30 firms in this process so far, handily listed by TechCrunch (http://techcrunch.com/2014/07/21/yahoo-is-buying-mobile-analytics-firm-flurry-for-north-of-200m/).


Huawei's growth outpacing Ericsson's this year July 21 2014

As one report says the Chinese firm has overtaken the leader in carrier networks, Ericsson benefits from shift to capacity

By Caroline Gabriel

While Ericsson boasted of strong improvements in its margins during the second quarter, as operators move towards capacity-driven projects, its optimism was overshadowed by Huawei's own rapid revenue growth, and reports that the Chinese firm has now snatched Ericsson's crown as telecoms equipment leader.

Huawei reported preliminary figures for the first half of 2014, which showed a 19% year-on-year revenue leap to CNY135.8bn (€16bn), with an operating margin of 18.3%. It has not yet published additional details, but credited a range of factors with its uptick - growing investment in LTE worldwide, also cited by Ericsson; rising carrier spend on software and services; "sustainable growth" in handsets; and a buoyant enterprise business.

"Driven by increasing investments in LTE networks worldwide, Huawei has further solidified its leadership position in mobile broadband," said CFO Cathy Meng, in a statement. "Rapid growth in software and services helped maintain steady growth in our carrier network business ... We are confident that in 2014 we will achieve sustainable growth, robust operations, and healthy financials."

Meanwhile, Ericsson turned in solid Q2 results, though its revenues were down 1% on the same period last year, to SEK54.8bn ($8bn). Its performance cannot be compared directly with that of its arch-rival until Huawei publishes full quarterly breakdowns later this month, but it will be very aware of the shift in major spending from north America, where Huawei is all but excluded, to China, as well as its competitor's broader reach, with its handset and enterprise businesses both on the rise.

But the improvement in margins is an important achievement for Ericsson, building on the start of that pattern in Q114. Last year, the Swedish firm's profits were depressed by the carriers' emphasis on lower margin modernization and coverage projects, but now, many are starting to invest in capacity, especially in LTE.

Gross margin was up by four percentage points to 36.4% while operating margin rose by 2.8 percentage points to 7.3%. That helped drive up net income by 76% year-on-year to SEK2.7bn.

In the quarter, 53% of revenues came from the Networks division, 42% from Global Services, and 5% from Support Solutions (which includes the growing TV Media activity).

As well as mobile broadband capacity roll-outs, including in north America, CEO Hans Vestberg also singled out the IP router business - which has 120 customers now - and managed services, as highlights. In the latter category, Ericsson won 21 new deals in Q2, including projects in Greater China, and "one of the largest transformation deals we have ever done", with T-Mobile USA, whose BSS Ericsson will upgrade and manage. OSS/BSS, including virtualization, will be important growth drivers, said Vestberg.

The CEO also said Ericsson's handset modem business "will start generating sales by the end of this year", as the company's M7450 modem begins to feature in "smartphones and data devices".

On the negative side, Ericsson said the Middle East and Africa businesses were hit by political unrest while there were "lower revenues from two large mobile broadband coverage projects in North America, that peaked in the first half of 2013, and reduced activity in Japan".

According to new calculations from analysts at Infonetics, Huawei overtook Ericsson as the leading telecoms equipment supplier to service providers in 2013. With Chinese roll-outs gaining volume as several major US deployments slow down, the benefits of the company's position in its homeland are more than offsetting the effective bar on Huawei kit in the US, where Ericsson has been part of the leading LTE roll-outs.

In the overall telecoms and datacomms equipment space, which rose by 3% year-on-year to $183bn, Cisco leads because of its enterprise power, followed by Huawei, Ericsson, Alcatel-Lucent and ZTE. In the enterprise, Cisco's challengers (though all well behind the leader) are Avaya, Brocade, HP and Juniper, sharing similar market shares. The analysts project that a cumulative $1.01 trillion will be spent by service providers and enterprises on telecoms and datacomms equipment, and software, between 2014 and 2018.


Microsoft decimates Nokia division July 18 2014

Under CEO Nadella's reorganization, 18,000 jobs will go, 12,500 former Nokia employees, as role of devices is squeezed

By Caroline Gabriel

Given the tone of Microsoft CEO Satya Nadella's recent manifesto about the future of Microsoft, which was clearly cool about the acquisition of Nokia's devices business, it came as no surprise that, as the company confirmed one of the biggest programs of layoffs in its history, the handset division was the chief casualty.

Microsoft may be increasingly multiplatform with its cloud applications and mobile enterprise tools - the heart of Nadella's strategy - but it still wants to offer an end-to-end, Windows-based solution for the substantial base of enterprises which trust that approach. Nadella may know that 'Windows everywhere' is no longer a viable strategy, but that doesn't mean Microsoft will not still push its own OS as a superior option, enhancing it and reducing its licensing fees. So the mobile devices strategy, after flirting with Android, will now be refocused entirely on Windows Phone.

Here, Microsoft will pursue a 'bottom-up' approach, seeking to make WP8 a serious competitor to Android on low end devices and attract OEMs in that space, and investing in its hubs in Brazil and Vietnam.

That will involve the axing of the Nokia X Android line, despite recent upgrades to it post-acquisition, and also Nokia's elderly Series 40 platform, which gained its second wind in the past couple of years by powering the Asha range of 'smart featurephones'. The shift to Windows Phone-only does remove confusion for OEMs, and sees Microsoft doing what it should have done all along - optimizing its smartphone OS for the segments where there is still significant growth, in emerging markets where the Nokia brand is still strong.

It is almost certainly too late for Microsoft to gain mass market share for Windows Phone, despite its attractions and differentiated experience, at this stage, and a bolder Nadella might just have killed it - as surely he will one day. After all, if he was serious about being a high volume smartphone maker, he would have stuck with Android and Nokia X. So soon after the acquisition of Nokia, however, it would have angered shareholders to make a complete U-turn, effectively telling them Microsoft had wasted its money. So, like Google with Motorola, Microsoft will hang on for now and seek to extract the jewels from its purchase, such as R&D inputs to Xbox and Surface, its more important hardware activities.

And Android activity will not be dead of course - Microsoft is increasingly releasing business and consumer productivity apps, and web services, for Android and iOS ahead of its own operating systems.

The change of emphasis in devices will cost 12,500 former Nokia employees their jobs, in a total cull of 18,000 staff (14% of the workforce) across Microsoft, designed to meet Nadella's objectives of streamlining and reducing time to market. A memo from Stephen Elop, former Nokia CEO and now head of a much-reduced Microsoft devices kingdom, said that the cellphone unit will now target two markets - "future high end Lumia products" and "more affordable devices". R&D for both lines will be driven out of Finland, from the former Nokia centers in Salo and Tampere.

The high end products - which presumably will, one day, converge with, or replace, Windows RT - will be delivered "in alignment with major milestones ahead from both the Windows team and the Applications and Services Group", which likely means a new version of WP and Office early next year.

At the low end, handset design will focus on "driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone", which suggests a concentration of the pared-down resources on Nokia's traditional strongholds such as India, but also on South America via Brazil. Microsoft has new manufacturing hubs in Vietnam and Brazil but will reduce engineering in Beijing and San Diego, though both sites will continue to have "supporting roles", the Chinese team in developing affordable devices in Beijing and the California group in specific US requirements. Two more Nokia centers in Finland, Espoo and Lund, will still operate and will focus on application development, Elop said. Microsoft will shut down the Nokia plant in Hungary, which employs about 1,800 people.


IBM/Apple deal targets Microsoft, hurts BlackBerry July 17 2014

Apple wins most in pact to create 100 exclusive iOS apps for vertical markets and harness IBM enterprise channels

By Caroline Gabriel

Just as some confidence was returning in BlackBerry and the turnaround plans of its CEO John Chen, it has suffered another blow as IBM and Apple team up in its enterprise heartland. The duo, which will create exclusive iOS applications and work together to target vertical markets, will not really be aiming fire at the ailing Canadian company though - their real target will be Microsoft, while Apple will be keen to keep Google's Android and web services firmly in their place too.

The companies hailed their agreement, named 'IBM MobileFirst for iOS', as a "landmark" and IBM CEO Ginni Rometty praised Apple as "the gold standard for consumers", apparently forgetting similar enterprise-focused alliances it has made in the past with companies like Samsung and, of course, Microsoft. If it puts greater resource into this one than some past efforts, Apple will certainly be able to build on its already impressive growth in the enterprise, acquiring a new salesforce, a hugely trusted brand in areas like security, and 100 new iOS business applications.

These 100 apps are the heart of the deal. They will be created jointly by IBM and Apple, exclusive to iOS and tailored to individual vertical markets such as retail, healthcare, banking, transportation, telecoms and insurance. This will give Apple, already a strong player in the enterprise, the ability to target specific segments in a way its current frameworks do not allow.

In addition, IBM's cloud services such as device management, security and analytics will be optimized for iOS. This is where BlackBerry, as well as other mobile management platforms, will feel the pinch - and the move may also prevent Apple being tempted to bring its own expanding artificial intelligence platforms into the enterprise space, rather than keeping them for consumers and Siri. IBM's analytics engines, including the famous Watson machine learning platform, are a critical aspect of its services and mobile-first offering. So it is a considerable coup that Apple has agreed to standardize on its new friend's analytics and big data apps, effectively cutting a hefty market off for other players in this booming area.

Apple has also agreed to tailor AppleCare for enterprise deployments with support onsite via IBM; and use IBM's Fiberlink MaaS360 for mobile device management; while IBM will package device activation, supply and management for the iOS partnership; sell vertical-focused iDevices bundled with its apps; and lend the support of its 100,000-strong consultancy group and its financing arm to push Apple solutions.

Apple CEO Tim Cook said: "We're putting IBM's renowned big data analytics at iOS users' fingertips, which opens up a large market opportunity for Apple. This is a radical step for enterprise and something that only Apple and IBM can deliver."


Intel has lost $2bn in mobile so far this year July 17 2014

Q2 results show resilience in PCs, growth in Chromebooks, but continuing struggle to turn mobile processors into profits

By Caroline Gabriel

The PC may be changing shape as unpredictably as a Transformer, but it is not being replaced by the smartphone or even the tablet, if Intel's latest results are anything to go by. While tablets are eating up much of the older form factor's growth, there is also considerable buoyancy in devices with large screens and keyboards, particularly Google Chromebooks. As it continues to struggle in mobile, it will be essential for Intel to keep its x86 processors inside those products, rather than cede them to lower cost ARM-based providers.

In Intel's second quarter financial report, mobile losses continued to mount, but PC revenues held up surprisingly well. Overall, the company reported record quarterly microprocessor shipments, and added $1bn to its year-ago revenue figure, turning in $13.8bn for the quarter. Operating income was $3.8bn, net income $2.8bn and earnings per share 55 cents.

Intel did not give exact processor shipment numbers, but credited that business with its strong figures, and particularly singled out Chromebooks and its low power Bay Trail system-on-chip. Slow to get the power-efficient SoC right in the past, Intel was in danger of ceding not just the handset market, but all the emerging new post-PC form factors, to ARM-based rivals. However, Bay Trail and other upcoming SoCs have finally given the company an offering which can genuinely go up against ARM in the low power game.

"With the ramp of our Bay Trail SoC family, we have expanded into new segments such as Chrome-based systems, and we are on track to meet our 40m unit tablet goal," CEO Brian Krzanich said in a statement. "In addition, we hit an important qualification milestone for our upcoming 14nm Broadwell processor, and expect the first systems to be on shelves during the holidays." The 14nm shift, together with 3D transistors, will put Intel ahead of the field in terms of process, indicating the advantages of its control of its own production, and enabling it to reduce power, size and cost of chips further.

Other upcoming chips for the year include Cherry Trail for tablets, which will ship by the end of the year, and Broxton, the next generation low-power Atom chip. Next year, Intel will release Skylake, for PCs and tablets.

However, the mobile and communications group continues to struggle. Its revenue was down 67% on Q114, and 83% year-on-year, to just $51m, a drop in the ocean for a company which has often acknowledged that mobile expansion is critical to offset the decline of the PC. The group lost $1.1bn in the quarter and has lost $2bn already this year.

Intel has come very late to the smartphone party, and despite some recent design wins and a much improved offering, it still has important disadvantages compared to Qualcomm, notably the lack of a fully integrated processor/modem solution for LTE - essential for low cost, low power handsets.

CFO Stacy Smith recognized the urgency of the situation, saying that, if Intel cannot integrate mobile connectivity into communications within 3-4 years, it will be locked out of critical segments of the market. Many would say Smith was being optimistic on the timelines.

Krzanich said on the analyst call: "I believe, over time, we can make this a profitable business. We have some ground to make up in moving LTE to Category 6 and having our products designed for this segment. As we turn into SoFIA [the all-in-one SoC family], you'll see a family of product really targeting this space and that's how we become profitable."


Thread pitches Google against Bluetooth in smart home July 16 2014

Google's Nest unit, Samsung and ARM head up latest IoT-focused standards group, with focus on 802.15.4 wireless home networks

By Caroline Gabriel

The latest in a long line of would-be standards for the internet of things (IoT), Thread is positioning itself against Bluetooth Smart and Z-Wave as the personal area network of choice for the smart home. Backed by the powerhouses of Google (via Nest) and Samsung, Thread is based on the 802.15.4 specification, and so its best chance of success will be to unite the advantages, and the supporter bases, of two 15.4-based standards, ZigBee and 6LoWPAN.

The Thread Group initially contains Nest, the smart home gadgets maker owned by Google, and Samsung, along with ARM, Freescale, Silicon Labs, Yale Security and ceiling fan maker, Big Ass Fans. Samsung and Google both have devices as their entry point to the smart home, and from there the broader IoT, but have ambitions to influence the whole stack, using 'open' vehicles to try squeeze mutual arch-rival Apple back behind its garden walls.

In contrast to some other recent IoT groupings - such as the AllSeen Alliance, based on Qualcomm's AllJoyn technology, and the Open Interconnect Consortium, led by Intel - Thread aims to standardize the physical network which could then support any of those higher layer standards.

Thread is initially heavily focused on 6LoWPAN, because it is already used by Nest, and because it supports IPv6, important to ensure the IoT is future-proofed against running out of address space. 6LoWPAN is effectively a version of IP for the embedded space, providing a compression format for IPv6 that is optimized for low power, low bandwidth wireless links.

But the new body also hopes to lure the larger base of ZigBee developers, claiming many ZigBee devices could be upgraded to support Thread with just a software update. Attracting a home-focused ZigBee company like GreenPeak would be a valuable endorsement in the first major target market, the smart house.

Thread will add software to the 802.15.4/IPv6 foundation, for functions such as routing, set-up, security and device wake-up, to standardize these capabilities and reduce power. The Thread group will provide testing and certification for its specifications, emulating WiFi and Bluetooth rather than the more splintered ZigBee. Some Nest products already use an early form of Thread, rather than vanilla 6LoWPAN, pointing to the heavy influence of Google's subsidiary on the shape of these specs, though there is also likely to be considerable input from ARM via its Sensinode acquisition. The Finnish software firm was a significant contributor to 6LoWPAN and other low power M2M standards.

To win sufficient critical mass to become a de facto standard, Thread will need to prove superiority over Bluetooth Smart. The new group's backers argue it will do this because 802.15.4 supports true mesh - a useful architecture for home networks and not currently enabled by Bluetooth - and the new Thread additions will promise stronger encryption and IPv6, and even lower power consumption.

The appeal for ZigBee stalwarts - which include Samsung, the only major handset maker to propose implementing the protocol in mainstream smartphones - is that the industry weight of Google might give their standard a boost in the home market, where it has had far less impact than in the industrial world.

"Existing wireless networking approaches were introduced long before the IoT gained ground. The Thread protocol takes existing technologies and combines the best parts of each to provide a better way to connect products in the home," said Vint Cerf, VP and chief internet evangelist for Google and advisor to the Thread Group.


Nadella steers Microsoft away from 'devices and services' July 16 2014

Major job cuts loom, including in former Nokia business, as CEO puts cloud first, and chases new productivity

By Caroline Gabriel

Microsoft CEO Satya Nadella has issued a manifesto for his company's future, clearly indicating a shift away from devices - a move which is likely to be underscored by upcoming job cuts.

The missive - a 3,000-word email to employees, but also made public - raised alarm bells for the former Nokia business, and those will soon become louder. Microsoft is expected to make swingeing job cuts within the next few weeks, which are likely to hit the handsets activity hard, and just to rub salt in the wound of bad timing, Nomura analysts also expect the firm to take a charge of at least $1bn "to mitigate the risk of the Nokia acquisition" - finalized, of course, less than three months ago.

Not that Nadella is suggesting axing hardware like Surface or Xbox, but we can expect a slowdown in any new moves to expand the mobile range, especially the Nokia family. The document places the cloud platform Azure - which Nadella formerly headed up - at the heart of the company, and in a pointed strike at his forerunner, Nadella writes: "While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy."

Nadella wants Microsoft to become the "productivity and platform company for the mobile-first and cloud-first world", he writes - and by productivity, he looks "beyond solely producing something to include empowering people with new insights". He argues that people are "swimming in a growing sea of devices, apps, data and social networks" and need applications and gadgets that can make sense of that, for instance by dividing work and personal data intelligently.

However, under all this vision there are plenty of old Microsoft favorites being dusted off for the new era. We might have hoped Nadella would be bold enough to turn his back on hardware altogether, given the limited success of Surface and the conflicts with OEM partners. But he insists that Surface Pro 3 "is the world's best productivity tablet" and that "we will build first-party hardware to stimulate more demand for the entire Windows ecosystem".

This is, however, a shift away from older Microsoft claims that it would take significant tablet and handset market share over time. Instead, like Google with Nexus, it is focusing on making new markets, stimulating interest and showing what can be done, and then stepping back for OEMs to ramp up the volume.

Nadella wants to stop talking about individual devices, or even about mobile, and to create 'experiences' which are common across all kinds of screens, gadgets and connections. "While today many people define mobile by devices, Microsoft defines it by experiences," he says. "We're really in the infant stages of the mobile-first world. In the next few years we will see many more new categories evolve and experiences emerge that span a variety of devices of all screen sizes."

The CEO acknowledges that achieving his goals will need "fundamental cultural changes", including management and organizational shake-up, which will prompt groans in many quarters, given what a short time has elapsed since Ballmer's last big restructuring. One of the critical aims of the latest shake-up will be to address criticisms, from the Microsoft board as well as many customers and partners, that development times are too slow for the rapidly changing needs of enterprises, consumers and the mobile world. "Every team across Microsoft must find ways to simplify and move faster, more efficiently," Nadella writes. "We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes."

Flatter structures and streamlined processes usually mean significant layoffs too, and Microsoft's stock leapt to $42.47 on Tuesday morning on Wall Street anticipation of these efficiency drives.

The uptick was prompted by a research note from Nomura's Rick Sherlund, which predicted "bold moves and organizational changes" as well as increasing his earnings forecast from $45 to $50 for the fiscal year. He expects Microsoft to take a $1bn-plus charge related to changes in strategy following the Nokia acquisition - probably connected to major cuts to the 25,000 workforce that came with that transaction.


Apple may struggle with this year's upgrade cycle July 15 2014

Delays rumored for iWatch and 5.5-inch iPhone because of major adjustments to design and supply chain

By Caroline Gabriel

The past couple of years have seen Apple struggle with its traditional annual iDevice upgrade cycle. With excited rumors about the next model starting up almost as soon as an iPhone is delivered, the vendor becomes a victim of its own unmatched ability to create consumer anticipation. Months before the expected unveiling of a new upgrade, purchasing of the current handset slows - so if, as reports indicate, some of the hoped-for features are delayed this year, the problem will get even worse.

Reports indicate that both the iWatch and the 5.5-inch iPhones may arrive later than expected because Apple is having to adjust its supply chain to support unfamiliar components, some of them hard to make in the volumes it requires. This not only raises the prospect of new iDevice mass market sales being pushed into 2015, with negative impact on the important fourth quarter, but also shakes confidence in the once-infallible control that Apple has of its components suppliers and manufacturers. It has suffered parts shortages before, but in this intensely competitive mobile market, product delays have a far greater effect than in Apple's heyday at the top of the smartphone tree.

Apple is widely expected to boost its holiday season revenues with larger-screen models for both its premium and 'budget' iPhone families, as well as introducing the long expected iWatch. However, diversifying the iDevice range has its own supply chain challenges, and well respected analyst Ming-Chi Kuo believes the iWatch will not ship in volume until late November, rather than September as originally believed.

The product "represents a new level of difficulty for Apple in regard to both hardware and software development", wrote Kuo in a research note, and has involved the OEM adding new (and hard to manufacture) parts to its supply list. That will make it hard for Apple's manufacturers to hit the volumes Wall Street is anticipating for this year - analysts have touted 10m by year end, while the reality may be closer to 2m. If that prediction proves true, Apple will have missed some of the opportunity of the holiday period to shift smartwatches.

Kuo also suggests that the 5.5-inch iPhone may also be late. Apple is reportedly planning to launch two models, both with larger displays. The 4.7-inch model would go ahead as expected, this fall, if the reports are right, but the 5.5-inch version could be pushed back into next year. AppleInsider, quoting Kuo, said there may be issues with the in-cell touch panels and with the quality of color on the display. "The new in-cell touch panels may have issues related to touch sensitivity on the edges of the panel as displays become larger in size, making the 5.5-inch model a much greater technical achievement for Apple to accomplish," says the research note. The larger smartphone is expected to sport a sapphire front panel to make it scratch-resistant but Kuo suggests this is not passing the tests for being shatter-proof.

Even if both sizes make their debut in September as expected, and ship in volume during Q4, analysts are bracing for the biggest freeze ever on sales of current models, in the run-up to the launches - making it even more important that Apple can meet that pent-up demand quickly during the fourth quarter, before Samsung intervenes with a tempting new Galaxy.

T Michael Walkley of Canaccord Genuity wrote in a research note that "our surveys indicated growing consumer anticipation for new larger-screen iPhones. Based on our analysis of global iPhone sales by region, we believe consumers slowed the pace of iPhone upgrade purchases during the iPhone 5 and 5s product cycles. We believe the extended replacement rates combined with new larger-screen iPhones position Apple with its large installed base for record iPhone 6 sales. Recent history definitely indicates that Apple's September quarter iPhone sales will slow ahead of the iPhone 6 launch."

Here is a partial list of our customers for your reference: