Is it time to get bearish or bullish with telecoms stocks? While we won’t advise you where to invest, we can answer the question – what do recent quarterly reports say about the state of the sector in the first three months of the year?
Ongoing disruption to supply chains, exacerbated by continuing lockdowns in China; the war in Ukraine, and its impact on energy markets and food exports; consumer confidence dented by the cost-of-living crisis.
The global economy is in the midst of an unprecedented series of catastrophes, pushing markets to the brink and wiping hundreds of billions of dollars
from the value of tech stocks and triggering fears of recession – or at the very least a bear market.
Stocks plummeted on the 5th
May, delivering the NASDAQ’s worst single day drop
since June 2020, during the height of the COVID pandemic.
Nowhere has this change of fortunes been better exemplified than with Apple, which became the first company to reach a market valuation of $3 trillion
in January, before losing its title as the world’s most valuable company to Saudi Aramco in the face of soaring oil prices.
But it hasn’t been all doom and gloom for the telecoms sector, with particular areas thriving and even outperforming, despite tough circumstances.
Here are five insights on the state of the industry gleaned from this last quarter’s earnings reports:
Smartphone demand is down overall
reported a net income increase of 75.9% year on year to 113.7 billion yuan, but a nearly 14% drop in first quarter revenue from a year ago.
Smartphone sales in China fell by 14%, with Huawei suffering a 64.2% drop in sales from the previous year – a far cry from the halcyon days of 2020, when Huawei became the world’s number one handset manufacturer
Internationally, only Apple saw a rise in handset sales
compared with Q1 2021, with the market as a whole dropping by as much as 11%
Huawei has been consolidating other business lines to offset the impact of falling smartphone sales. Its cloud division
, currently the company’s smallest, is one area Huawei is focusing heavily on to pick up the slack, while introducing its proprietary HarmonyOS into electric cars, such as the Aito M5
However, the company remains under international sanctions, prohibiting purchases of its telecom infrastructure equipment in many countries, with a Trump-era blacklist also restricting critical component purchases from US-based suppliers.
saw healthier sales, particularly given the release of its new Galaxy S22 model, but sales nonetheless were down 11% versus last year, despite the S22 selling 50% more in its first week than the S21, though this speaks more to the poor performance of that handset
when it hit the market.
Despite this, Samsung celebrated an estimated 50% jump in profit – its highest since 2018 – supported by solid demand for its memory and contract chips. With demand expected to waver after a pandemic boom and component prices rising
, this demand for memory may soon be forgotten
Investors are on cloud nine
’s parent company, Alphabet, posted a $1.5 billion drop in net income for the quarter. However, overall revenue rose by 23% to $68 billion.
The company grew its sales of Google Cloud by 43% to $5.8 billion during the quarter, a $1.8 billion increase compared with the same quarter last year, reflecting significant growth in infrastructure and platform services, the company’s chief financial officer stated in the earnings call
. However, aggressive investment in this area to compete with Microsoft and Amazon has led to losses of $931 million
themselves suffered a disappointing quarter in Q1 2022, blaming diminished consumer demand and the rising cost of fuel and warehousing
for its delivery services. Overall, the company suffered a $3.8 billion loss in Q1, though total revenues of $116.4 billion beat expectations.
With external factors affecting the delivery of certain services, it is Amazon Web Services (AWS) that is driving growth. AWS increased its revenues by 37% to $18.4 billion, above industry predictions, the only one of Amazon's segments to report net operating income.
reported a 17% drop in profit, with blame laid at supply chain issues and the company’s exit from the Russian marketplace. However, it did see a 9% growth in sales for Cloud and Network Services, driven by strong demand in both fixed and submarine networks, while the performance of its mobile networks remained flat.
During the quarter, Nokia extended its partnerships with telcos and other enterprises in Italy, the Baltics, Poland, China, Saudi Arabia and Indonesia, and was selected by Cerillion customer GO in Malta
as its sole partner for a nationwide 5G RAN rollout
Cloud, and its associated infrastructure and analytics services, has become a safe haven for large tech companies at a time when various other factors are weighing heavy on service delivery.
Getting back to basics: telecoms companies focusing on telecoms
posted a 2.5% rise in wireless revenue to $29.7 billion, thanks to the ongoing expansion of its fibre Internet and 5G services, adding 691,000 monthly phone subscribers during the quarter. Its business wireline revenues, though, continued to fall by 6.7% to $5.64 billion.
Total revenue, however, was down more than 13%, reflecting the lost revenue from the divestment of its media and entertainment wing, WarnerMedia, sold to Discovery for $40.4 billion
– much lower than the $85 billion it originally paid for it in 2018 – as the company refocused on phone and internet services.
Pity, given that the global subscribers for its streaming service, HBO Max, increased by 3 million from the previous quarter, as other services struggle to hold onto subscribers
has similarly offered up BT Sport to a joint venture with Warner Bros. Discovery
and its Eurosport channel, creating what BT boss Philip Jansen calls “a new global content powerhouse,” with separate brands offering a shared selection of content to customers of both.
Despite the broad trend of telcos moving into content over the last few years, these developments indicate a refocusing on traditional connectivity services, as the market becomes increasingly saturated and streaming services begin to see a fall in users
looking to cut extraneous spending.
Can industry consolidation stave off price rises?
revenues rose 4% to €45.6 billion, but pre-tax profit fell 10% to €3.95 billion.
According to Hargreaves Lansdown’s view on Vodafone’s earnings
: “Despite the multi-billion investments in mobile spectrum, there's not much differentiating mobile providers
other than the price they charge. Customers often just go with the cheapest deal.”
Little wonder that it may be pursuing a merger with Three
, a deal which could greatly grow its market share and investments in its network coverage.
Vodafone’s chief executive Nick Read has argued for the consolidation of European telecoms
as the merged businesses could be more attractive to investors – appropriately around the same time the company has faced pressure from its largest activist investor to simplify its portfolio.
Virgin Media O2
, the recently formed UK-based telco giant, reported profits up 5.3% compared with Q1 2021 – they’ll need every penny of it, as they bank on their combined might being enough to take on Openreach’s fibre network and provide better package deals to their 47 million customers.
While the merger has produced some fruitful benefits for customers, such as some generous bundling of streaming services
and no returning roaming fees
in the EU, it hasn’t been enough to keep Virgin Media from raising prices – but oddly not O2. The company now faces strike action
after raising bills by 11.7%, against a measly 3% pay increase for employees.
Will the great metaverse gamble pay off?
made a small recovery from the annus horribilis
that was 2021, with its first earnings report of the year seeing total revenue for the quarter at $27.91bn, falling slightly short of estimates. The company’s 7% revenue growth year-over-year was the smallest it has ever reported, down 21% from a year earlier.
This earnings report was the first since its record $230 billion in market value after it emerged that Facebook had recorded its first-ever drop in daily users
as it grapples with increased competition from other apps, in particular, TikTok.
The company going all in on the metaverse
will be slow to pay off. Meta’s virtual reality research and product development sector, Reality Labs, lost $2.96 billion this period, compared with $1.83 billion in losses in Q1 2021. Earlier this month Meta announced its grand plans to monetise the metaverse
, including allowing users to earn money from their virtual creations.
No matter what direction the market goes in 2022, connectivity will remain a key driver for maintaining growth or driving recovery, and a useful barometer of where customers and businesses see value in their services.