Weekly Digest
Weekly Digest Issue No. 541
11-11-2010
by Deirdre McArdle
Cisco outlook causes investor concern | Yahoo takeover rumours persist
Voda, O2 grow customer base, see ARPU drop
Vodafone Ireland this week declared itself 'home of the smartphone' as its key performance indicators (KPIs) for the third quarter revealed that half of its bill-pay device sales were smartphones. Coinciding with the boost in smartphone sales, the group recorded a 26 growth in data revenue for the quarter.
At the end of September, Vodafone had 2.38 million customers across its mobile, DSL and fixed line divisions, up 31,700 year-on-year. The vast majority of its customer base falls under the mobile category, at 2.18 million. As subscriber numbers grow though, the amount each customer is spending every month is falling. For the third quarter, average revenue per user (ARPU) came in at EUR35.40, down 8.9 percent from the year-ago period.
Falling ARPU is a common trend among mobile operators over the past year. Indeed, Vodafone's main rival O2 Ireland also saw user spending drop. During the first nine months of the year ARPU declined to EUR37.14 from EUR39.67 for the same period in 2009. In its KPIs for the third quarter, O2 said customer numbers increased by 5,400 to bring its subscriber base to 1.716 million. O2 said it now has over 160,000 mobile broadband customers.
Service revenue for the quarter dropped from EUR213 million in the third quarter of 2009 to EUR198 million; however, the figure was up from EUR193 million in the previous quarter. Like Vodafone, O2 is seeing data revenue growth as smartphones increase in popularity. For the quarter, data revenue accounted for 12.4 percent of overall service revenues, up from 10.4 percent in the same period last year.
BT Ireland enjoys proft growth, contract wins
Meanwhile, BT Ireland, which struck a customer-transfer deal with Vodafone in July 2009, reported its results this week. For the six months to the end of September, BT Ireland saw revenues drop by 4 percent to STG373.6 million, but EBITDA (earnings before interest, tax, depreciation and amortisation) jumped by 14 percent from the year-ago period. Graham Sutherland, CEO of BT Ireland, put the profit increase down to cost management programmes and the "successful delivery of large retail and wholesale contracts".
When BT Ireland transferred its consumer and small business customers to Vodafone last year it said it would be focusing on the lucrative large business and government sectors. During the first half of this year it has certainly made an impact in these areas. It has won a contract with eBay to provide data hosting services; secured deals with VHI Healthcare, Danske Bank, Glanbia and PineBridge Investments to provide domestic and international network services; and has a contract to supply videoconferencing services for Element Six.
Separately, the BT Group recorded net profit for the three months to the end of September of STG399 million, down from STG428 million in the same period a year earlier. Revenue also declined to STG4.98 billion, down 1.8 percent from STG5.07 billion in the same period in 2009. However, there were some positives: the telecoms firm posted pre-tax profits of STG496 million, up 13 percent from a year earlier, and recruited 114,000 new broadband customers during the quarter. Giving the markets something to cheer about, BT said it now expected EBITDA to be about STG5.8 billion for the full year, compared with a previous forecast of STG5.6 billion.
Cisco outlook causes investor concern
Following some positive financial results for tech big hitters such as Google, Intel and Microsoft, Cisco on Wednesday shocked the market with a lukewarm outlook. The networking firm posted revenue for its fiscal first quarter to the end of October of USD10.75 billion, up 19.2 percent on USD9.02 billion in the year-ago quarter. Profit for the period increased by 8 percent to USD1.9 billion, while earnings per share jumped 13.3 percent to USD0.34.
While the quarterly figures were ahead of analyst expectations, the firm's breakdown of its results and estimates for the year ahead have caused alarm. During a conference call with the press on Wednesday, Cisco CEO John Chambers said the firm saw a drop in orders from both government customers and cable TV operators. Government orders declined by 25 percent from the year-ago quarter, while cable operator orders decreased by 35 percent. But it was Chambers' outlook for the remainder of the firm's fiscal year that caused the most concern. He forecast revenue growth of between 9 percent and 12 percent for Cisco's 2011 fiscal year, less than the 13 percent growth analysts had expected.
Cisco shares fell USD3.09 to USD21.40 in after-hours trading on the NASDAQ, following its earnings announcement. Although recent positive results from the likes of Intel suggested a tech sector recovery, investors are now worried that this turnaround was short-lived. Due to its broad customer base which covers numerous sectors, Cisco's figures are considered a bellwether of tech spending. In addition, unlike earlier financial results from Intel, Microsoft, et al, Cisco's quarterly report includes figures from October, a factor that has caused skittish investors to question the tech sector's stability.
Yahoo takeover rumours persist
In other news from the stock market, continuing rumours about a potential takeover have seen Yahoo's shares jump in trading over the past few days. At the start of trading on Tuesday shares in the internet firm were up 6.6 percent to USD17.60, before they closed at 2.2 percent up. Interest in Yahoo's shares come as a number of investment firms and maybe even AOL are sizing up the search firm with a view to acquiring it.
A report by Reuters claimed that Jack Ma, founder of Chinese e-commerce site Alibaba, in which Yahoo has a 40 percent stake, has been approached by a private equity consortium to see if he would have any interest in joining a bid to buy Yahoo. Reuters quoted an unnamed source, who didn't specify whether the Alibaba bid attempt is a new one, or is part of a deal being put together by AOL. For its part, AOL has reportedly hired financial advisers at Bank of America to explore various strategic options, one of which includes a possible tie-up with Yahoo. According to the Wall Street Journal, the advisers have suggested different scenarios to AOL officials that illustrate how it could combine operations with Yahoo. AOL has held previous merger talks with Yahoo, but has never put forward a formal proposal.
This isn't the first time Yahoo has been at the centre of high-profile merger or buyout reports. It's highly publicised takeover talks with Microsoft, which culminated in the software giant withdrawing a USD44.6 billion bid for Yahoo, hit headlines all over the world during 2008. The fallout from those talks saw Yahoo lose half its market value, and it's been struggling ever since to regain solid growth.
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