The financial results announced by global telecom majors for the JanuaryMarch 2009 quarter show that the economic downturn is taking its toll. Both service providers and equipment makers have taken a hit, though the latter are considerably worse off. Key vendors such as Nokia, Motorola and Alcatel-Lucent, and operators like China Telecom and Sprint Nextel have all witnessed significant drops in their margins.

According to research firm Ovum, the average revenue over the quarter dropped by about 15 per cent for equipment vendors and by about 20 per cent for component suppliers. Naturally, sizeable cuts in capex have been planned to tide over the crisis. tele.net takes a look at the financial results of the major global telecom players…

Equipment and handset makers
Nortel
 An already ailing Nortel Networks was the first to buckle under the global crisis. Canada’s Nortel Networks Corporation and its US subsidiary, Nortel Networks, Inc., filed for bankruptcy in January 2009. Against $11.6 billion in consolidated assets, the company showed debt totalling $11.8 billion as of September 30, 2008. Its emphasis on CDMA technology stopped paying back financially, especially in the US, where two of the largest operators pulled back CDMA investments in favour of newer high-speed technologies.

Nokia
 For the Finnish handset major, retaining its market leadership position in the face of the financial meltdown has been an uphill task. The company witnessed a 90 per cent yearon-year decline in net profit in JanuaryMarch 2009. Revenue too slipped by 26.7 per cent. Nokia’s main business divisions, Devices and Services and Nokia Siemens Networks, recorded 33.4 per cent and 12.1 per cent drops in revenue respectively. The company’s market share declined from 39 per cent in January-March 2008 to 37 per cent in the reporting quarter.

Alcatel-Lucent
Networking major Alcatel-Lucent continued to post losses on a year-on-year basis. The company announced a loss of Euro 402 million ($538.8 million) for JanuaryMarch 2009 as compared to Euro 181 million a year ago. Revenues too dipped by 6.9 per cent to Euro 3.6 billion over the same period. The net debt, as of March 31, 2009, stood at Euro 841 million. The company hopes to break even by end-2009. Says Ben Verwaayen, CEO, AlcatelLucent, “2009 will be a year of transition. We are reshaping the company and aggressively pursuing product portfolio rationalisation, co-sourcing, working capital management and the selling, general and administrative (SG&A) reduction programmes. While expected, given seasonality and the tough market conditions, we are not pleased with the operating loss incurred in the first quarter.”

Motorola
Motorola reported a loss of $231 million in January-March 2009, which was lower than what analysts had expected. In the corresponding quarter of the previous year, the company had posted a loss of $1,194 million. Revenues fell by 28 per cent to $5.37 billion over the same period.

The cause of Motorola’s woes is its ailing handset business. Mobile sales in January-March 2009 totalled $1.8 billion, down by 45 per cent on a year-on-year basis. The company sold 14.7 million mobiles during the quarter, down from 27.4 million. Perhaps more worrying for the firm is that its two other businesses that have traditionally kept the company afloat ?? home networking and providing infrastructure to network operators ?? are also facing hard times. Sales in the home and network mobility division were $2 billion, down 16 per cent, and those in the enterprise mobility division were $1.6 billion, down 11 per cent.

The company expects the loss in the April-June 2009 quarter to be 3-5 cents per share, down from 10 cents per share in the reporting quarter. The company has reportedly increased its cost savings target for the current year by $200 million to $1.7 billion, including $1.3 billion from the mobile phone unit.

Ericsson
 Its business mix, worldwide presence and early decision to cut costs have helped Ericsson to post relatively better results amidst the economic turbulence. The company’s decline in net income, at 30 per cent, was the lowest amongst the top three global vendors ?? Nokia, Alcatel-Lucent and Ericsson itself. From SEK2.6 billion ($324 million) in January-March 2008, net income fell to SEK1.8 billion. Revenues grew by 12 per cent to SEK49.5 billion.

ZTE Corporation
Chinese vendors seem to be better placed than their Western counterparts. ZTE Corporation, for instance, managed to sustain growth. For the three months ended March 2009, the company recorded revenues of RMB11.67 billion ($1.71 billion), an increase of 35 per cent over the same period in 2008. Net profit went up by 29.17 per cent to RMB78.66 million.

Cisco
 Network equipment maker Cisco Systems posted a 17 per cent dip in quarterly revenue to $8.2 billion. Its profit too declined from $1.8 billion to $1.3 billion on a yearon-year basis. According to industry observers, the impact of the downturn could increase for Cisco as its partners IBM and Hewlett-Packard might scale down their business with it.

Operators
US
Two of the largest operators in the US, AT&T and Verizon, registered an increase in net profit on a year-on-year basis for January-March 2009. However, TMobile and Sprint Nextel reported a decline in margins.

AT&T reported a 9.6 per cent yearon-year rise in wireless revenues, largely offsetting the 12.2 per cent drop in fixed line sales. The consolidated revenue for the three months ended March 2009 was $30.6 billion, a 0.6 per cent drop from the same period in 2008. Net profit fell from $3.46 billion to $3.13 billion over the same period.

Verizon Communications reported a 5.3 per cent year-on-year rise in net profit to $3.21 billion from $3.05 billion. The acquisition of mobile operator Alltel by Verizon Wireless, which is jointly owned by Verizon Communications and the UKbased Vodafone Group, resulted in 13.2 million net additions during the quarter for Verizon Communications and boosted the company’s results.

In contrast, Sprint Nextel reported a 12 per cent drop in operating revenues to $8.21 billion for the first three months of 2009. Net losses increased from $505 million to $594 million.

UK
 The Vodafone Group announced good financial results despite the economic slump. The January-March 2009 quarter saw the group’s revenue increase by 15.6 per cent on a year-on-year basis to ??41 billion ($70.6 billion). The revenue from Europe went up by 13.6 per cent, driven by the outgoing voice usage rising by 9.4 per cent; Africa and Central Europe revenue grew by 11.2 per cent; and AsiaPacific and Middle East revenue, driven by the India market, grew by 32.3 per cent.

Data revenue for the Vodafone Group went up by 43.7 per cent to ??3 billion. The adjusted operating profit of the group also rose by 16.7 per cent to ??11.8 billion before impairment charges. The EBITDA increased by 10 per cent to ??14.5 billion. The group’s US mobile business, under Verizon Wireless, also saw profits go up by 44.7 per cent after the acquisition of Alltel. According to Vittorio Colao, CEO, Vodafone Group, the good results demonstrate the impact of the early actions that were taken to face the current economic conditions, as well as the benefits of the group’s geographic diversity. “The business continues to generate cash strongly and we have made good progress in implementing the strategy announced in November. Data revenue has grown and our broadband and enterprise businesses continue to perform well. Our ??1 billion cost reduction programme is ahead of plan and we continue to explore further ways to reduce costs,” claims Colao.

The British Telecom (BT) Group, on the other hand, is not doing as well. It is expected to slash another 15,000 jobs worldwide after posting a massive loss in the quarter ended March 2009. Pulled down by the massive charges of about ??1.58 billion in its Global Services division, the company reported a loss of ??977 million for the quarter, compared to a profit of ??426 million in the preceding year. Quarterly revenue rose by less than 1 per cent to ??5.47 billion. “Three out of four of BT’s business lines have performed well in spite of fierce competition and the global economic downturn. However, this achievement has been overshadowed by the unacceptable performance of BT Global Services and the resulting charges we have incurred,” says Ian Livingstone, chief executive, BT Group.

Southeast Asia
 This region saw mixed results amidst the financial crunch. China Telecom’s net profit for January-March 2009 fell by 27.4 per cent to RMB4.7 billion ($688 million) from RMB6.47 on a year-on-year basis, due to intense market competition and a continued decline in traditional wireline voice services. Operating revenues increased by 15 per cent to RMB50.9 billion.

China Mobile’s net profit for the quarter rose by 5.2 per cent to RMB25.21 billion. Operating revenues climbed 9.2 per cent to RMB101.3 billion. The company has, however, warned that its subscriber growth is showing signs of slowing down primarily due to the economic slowdown and rising penetration rates in the country.

Singapore Telecommunications (SingTel) posted its biggest fall in quarterly profit in two years after the Australian dollar and Indonesian rupiah weakened against the Singapore dollar. Net income fell 17 per cent to S$903 million ($616 million) in the three months ended March 2009 from S$1.09 billion a year ago. The earnings of SingTel’s biggest overseas contributors ?? India’s Bharti Airtel and Sydney-based SingTel Optus ?? rose in local currency terms for both the January-March 2009 quarter and the year ended March 2009.

Pakistan’s incumbent operator, Pakistan Telecommunication Company Limited (PTCL) reported a 35.9 per cent year-onyear decline in net profit to PKR 1.91 billion ($23.9 million) for the quarter ended March 2009. Revenue also fell by 14.5 per cent to PKR 13.9 billion.

Japan’s largest mobile operator by subscriber base, NTT DoCoMo reported a 4 per cent drop in net income from JPY491.2 billion ($5 billion) in the year ended March 2008 to JPY471.9 billion in the year ended March 2009. Another major operator, KDDI Corporation reported that its annual net profit increased marginally by 2.3 per cent to JPY222.74 billion from JPY217.79 billion, while revenues fell from JPY3.6 trillion to JPY3.5 trillion.

PT Indosat, Indonesia’s second biggest telecom group by revenue, recorded an 82.4 per cent year-on-year drop in net income in January-March 2009 due to the weak rupiah. Net income fell to IDR107.9 billion ($9.9 million) from IDR613.9 billion.

Operators in markets like Taiwan and Thailand fared similarly. Taiwan’s Chunghwa Telecom reported a 3.6 per cent year-on-year decline in revenue for January-March 2009 to TWD49.1 billion ($1.46 billion). Thailand’s second largest operator by user base, Digital Total Access Communication reported a 37 per cent year-on-year drop in quarterly net profit to THB1.48 billion ($42 million), which the company attributes to slow subscriber growth in a weak economy. Revenue from telephony services fell from THB17.43 billion to THB16.25 billion over the same period.

Gulf countries
 United Arab Emirates-based telecom operator Du (Emirates Integrated Telecommunication Company) posted a 54 per cent rise in revenue to AED1.16 billion ($450 million) for January-March 2009 from AED756 million in the corresponding period in 2008. The increase is largely attributed to a substantial rise in its subscriber base. The operator reported net profits of AED47 million as compared to a net loss of AED62 million a year ago.

Qatar Telecom (Qtel) posted a consolidated group net profit of QAR604.4 million ($166.2 million), up 15 per cent over January-March 2008. Total revenues rose by 58 per cent from QAR3.5 billion to QAR5.6 billion over the same period. The Doha-based company attributed the improvement to its diversified global growth strategy and the rapid expansion of subsidiary operations in several developing markets. A recent addition to the Qtel Group, Indonesian operator Indosat increased the group’s mobile user base by 26.1 per cent on a year-on-year basis to 33.3 million. Indosat contributed QAR1.4 billion in revenue for the quarter, equivalent to the turnover of Qtel’s KuwaiTbased subsidiary, Wataniya Telecom.

Operators in the Gulf countries that reported losses in January-March 2009 include the Saudi Telecom Company, Zain Saudi Arabia and Bahrain Telecommunications.

Challenging times ahead
The financial results show that service providers have been affected the least amongst telecom companies, followed by equipment manufacturers. The latter, banking on the developing economies, are looking to get back on track by end-2009. The segment that has not been spared at all by the economic slump is handset manufacturing, with Nokia, Motorola, Sony Ericsson Mobile Communications, LG and Samsung all having posted losses.

The companies are undertaking extensive programmes to reduce costs, adjust to the market environment and restore profitability. A slew of cost-cuTting measures have been adopted ?? layoffs, focus on core business, selling of non-profitable businesses, etc. When, and to what extent, these measures will yield results remains to be seen.