Wall Street Beat: Smartphone reports brighten up mixed results for tech

A fresh round of quarterly results and market research this week show some shadows over the networking and component markets while smartphones, as usual, were the stars of the tech arena.

The biggest disappointment of the week came from Cisco Systems, which Wednesday reported a year-over-year decline in profit and sales and offered a gloomy forecast for the current quarter. For the three-month period ending in October, Cisco reported net income of $2 billion, down 4.6 percent from a year earlier, while sales edged up by 1.8 percent to $12.1 billion. Company executives said they expect revenue this quarter to decline between 8 percent and 10 percent from a year earlier.

Several problems hit Cisco during the quarter, executives said. In emerging markets, sales declined. Concerns about surveillance in the wake of revelations about the U.S. National Security Agency may have had some impact on sales, particularly in China, company officials said.

Economic uncertainty as Europe still struggles with recession also played a part in the weak results, officials said. Part of the disappointing quarter, however, was due to Cisco’s transition to a new line of carrier network equipment, which has put a damper on orders, company executives acknowledged.

Hosting company Rackspace reported that quarterly profit was $389 million, up a solid 16 percent year over year, but profit plummeted 40 percent to $16 million. The culprit for the decline in profit was increased capital expenditures, which company executives said were necessary to achieve a fast, global rollout of what it calls its “performance cloud.”

Several analysts said the additional expenditures make sense. “We believe it is clear that additional investment is required to again stimulate growth in the newest segment of the business,” said Canaccord Genuity analyst Greg Miller in a research note.

Applied Materials, often seen as a bellwether for the components market since it is a provider of chip-making equipment, announced that quarterly sales were fairly flat year over year, rising from $1.65 billion to $1.99 billion, while profit rose to $183 million from a loss the year earlier. The results appear to be positive especially since the company may be facing weakening demand for NAND components.

The global NAND flash memory market is decelerating in the second half of the year as demand diminishes for local data storage in smartphones and tablets, due in part to the rise of cloud-based services, according to a report from IHS. The market research company said that preliminary estimates show that total NAND shipments were estimated to have grown 8 percent in the third quarter, down from 9 percent in the second quarter.

For the fourth quarter, NAND shipments will expand by an even lower 5 percent, down sharply from the 16 percent rise seen in the fourth quarter of 2012, IHS said.

“Streaming media options and free cloud storage are diminishing the prospects for increased NAND usage in smartphones,” analyst Ryan Chien said in the report. “This is true for all three major mobile operating systems—Apple’s iOS, Google’s Android and Microsoft’s Windows Phone. With less need to store data in local devices, the requirement for greater storage is reduced.”

The quarterly Ericsson Mobility Report, meanwhile, showed that smartphone take up is staying strong worldwide. Total mobile subscriptions through the third quarter year totaled about 6.6 billion, including 113 million subscriptions added during the third quarter, according to the report.

Worldwide subscriptions have continued to increase 7 percent year-over-year, the report said.

Smartphone sales as a percentage of all mobile device sales have been booming, according to the report. Smartphones accounted for about 55 percent of all mobile phones sold in the third quarter, compared to around 40 percent in the full year of 2012.

Smartphone uptake “doesn’t show any sign of slowing down,” according to the report. “Of all mobile phone subscriptions, 25-30 percent are associated with smartphones, leaving considerable room for further uptake,” the report said.

On its part, IDC said that Google’s Android OS reached a milestone during the third quarter. With 211.6 million smartphone units shipped during the quarter, Android accounted for 81 percent of all smartphone shipments, marking the first time that Android topped 80 percent market share.

Apple’s iOS took 12.9 percent market share while Windows phone came in third place with 3.6 percent, IDC said. Total smartphone shipments increased 39.9 percent to 261.1 million units. Windows phone shipments skyrocketed 156 percent, albeit from a much lower base than Android or iOS.

“Android and Windows Phone continued to make significant strides in the third quarter. Despite their differences in market share, they both have one important factor behind their success: price,” wrote Ramon Llamas, in the report. “Both platforms have a selection of devices available at prices low enough to be affordable to the mass market, and it is the mass market that is driving the entire market forward.”

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