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Published on January 29, 2013

Could Analysts Be Looking into the Wrong Crystal Ball?

If you only read news headlines based on analysts’ opinions and predictions, you might come to the conclusion that the telecommunications party is over, especially in the mobile and smartphone space. Take, for example, last week’s lead article on CNBC:

 “The woes dogging technology giant Apple sent its stock hurtling to its lowest levels in a year on Friday, while suffering the added misfortune of losing its mantle as "world's most valuable company" to Exxon Mobil. The company, which disappointed Wall Street with its earnings release this week, is being buffeted by doubts about its ability to compete with challenger Samsung. The reversal of fortune has been both quick and dramatic, with some surveys now showing Samsung's Galaxy smartphone now edging out the iPhone in market share.”

Or, how about this one published January 20th in the Financial Times (via Domain-b.com):

“Struggling telecoms equipment maker Nokia Siemens Networks (NSN) is planning to raise around €700 million ($930 million) through the sale of high-yield bonds in order to pay back drawn debt and fund investment, Financial Times yesterday reported, citing people familiar with the plan.”

Or, how about the January 24th Reuters headline about AT&T:

“NEW YORK (Reuters) - AT&T Inc.’s fourth-quarter profit was lower than expected but the telephone company promised earnings and revenue growth this year even if the economy does not improve.”

I think these articles and many more are missing the big picture; the mobility market is the hottest and most incredible market to have ever hit planet Earth.

Consider the following facts:

  1. January 23, 2013—Apple® today announced financial results for its 13-week fiscal 2013 first quarter ended December 29, 2012. The Company posted record quarterly revenue of $54.5 billion and record quarterly net profit of $13.1 billion (from the Apple website). Yes, that is correct, record revenues of $54.5 billion.
  2. Nokia Siemens Networks reported a record operating margin and surging sales and operating profit in the fourth quarter as its strategy of cutting jobs and units not related to mobile broadband begins to pay off. Nokia (NYSE:NOK) CEO Stephen Elop said that the vendor "had a tremendous and successful 2012," but also said that Nokia is open to "all options" for NSN, according to Reuters.
  3. Strong growth in wireless and U-verse drives revenue and adjusted earnings per share growth in AT&T's fourth-quarter results. Full-year 2012: strong earnings, record cash flows, $23 billion returned to shareowners (source: AT&T website).

In reality, the mobile communications market is absolutely amazing. The industry currently generates nearly US $1 trillion in revenues per year, with AT&T taking about $127 billion of that per annum based on 107 million wireless subscribers and 40 billion fixed lines. In 2013 AT&T announced that they will spend another $22 billion on infrastructure, an increase over 2013. What about Europe, you might ask? Vodafone enjoys approximate revenues of US $73.3 billion per annum and will spend another US $10.1 billion in CAPEX for network upgrades and expansion in 2013, again an increased amount compared to 2012. While it is true that their European revenues dropped by 1.1% during 2012, that was a result of EU legislation that took away some of the set fees. Vodafone more than made up for that with growth outside of Europe such that helped boost overall revenues by 1.5%. China Mobile said that revenues rose by 6.4% during the so-called slow year, and now has more than 700 million subscribers. Telefonica, with the famous O2 brand of mobile service, had whopping revenues of approximately 82.5 billion US$ in2012, with CAPEX spending at US $10.075 billion. Last, but certainly not least, is mobile provider American Mobile, which is active in Mexico and much of Latin America. American Mobile’s revenues are at the US $59.8 billion mark, and the company has ongoing plans to spend $8.28 billion in CAPEX. The reality is that these companies are huge, with growing revenues, increasing profits and tremendous cash flows, and they are NOT cutting CAPEX spending.

In addition, it is important to take stock of the rollout of 4G/LTE infrastructure. While it is true that some companies, such as Verizon Wireless (jointly owned by Vodafone and Verizon), have upgraded the majority of their networks to LTE and are leading the world in this respect, MOST of the companies previously mentioned are just getting started. Certainly, 2013 and 2014 will be the definitive years for LTE rollout.

So how will this affect EXFO, you might ask?

EXFO is well positioned to take advantage of the LTE wave. Building on the strength of early LTE wins, EXFO offers wireless protocol analyzers for LTE that are used to detect the trickiest of problems. In the multivendor, bring-your-own-device future of hybrid LTE/3G network, such tools are vital for Network Operators. We’re also in a unique position with regard to solutions for turning up and monitoring high-speed Ethernet links that deliver IP packets at blazing speeds to all of those new smartphones and tablets. While some vendors have portable Ethernet test sets and others have Ethernet monitoring solutions, we offer a completely integrated solution with both. Under the Ethernet One banner, EXFO’s solution marries test results made by filed technicians during initial turn-ups and uses them as birth certificates and benchmarks for 24 x 7 service assurance solutions that monitor backhaul and other high-speed networks. Finally, the vast expansion of mobile networks all depends on the growth of their supporting fiber networks, and it is worth noting that EXFO is a leading provider of fiber-optic test sets used when fibers are being installed or upgraded to higher rates.

Mobile World Congress, being held in Barcelona in February of 2013, is the global meeting place for mobile network operators such as Telefonica O2, Vodafone, AT&T and NTT, in addition to equipment makers, handset makers, and of course vendors offering testing tools and monitoring solutions. EXFO expects a very busy exhibit stand again this year. All are invited - Visit us at booth F83 in Hall 6!

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