Business Anywhere Blog

Mobilizing the Business and Business of Mobile

Is Mobile sector headed into troubled waters?

with 4 comments

Yesterday, AT&T announced some stellar performance numbers for the 3rd quarter 2008 led by growth in Apple’s iPhone 3G products. AT&T activiated 2.4 million iPhones during the quarter and their wireless data revenue grew to $2.7 billion. More recently, Apple also announced a great quarter with record sales of 6.9 million iPhones during the quarter. However, the future is very uncertain.

The end of last quarter saw the beginning of the economic downturn. We have already seen the effects of the downturn on Nokia which said its Q3 revenue fell by 7% from previous quarter. Sony Ericsson has also been affected by the downturn with their sales down 10% over previous quarter and profits down 1% over last quarter. No one knows how long it is going to last. As such all three companies mentioned above have lowered their forecast for the next quarter and the new year. That was expected, that is not the big story.  

The bigger story is the profit squeeze that the Mobile sector is facing. Take for example AT&T which is considered the bellweather for this sector. As I mentioned earlier, its revenue grew impressively. However, it had to subsidize the iPhones heavily, to the tune of $900 million in the quarter which amounts to a 10¢ reduction in its earnings per share. Clearly, AT&T has to subsidize the iPhones to stay competitive with RIM Blackberry, T-Mobile’s G1 and Microsoft Windows Mobile based phones with various carriers including AT&T. However, it is going to get worse going forward as consumers reduce their spending and shun expensive plans. There is a danger that consumers might shun smartphones all together. As Sanford C. Bernstein analyst Craig Moffett said to BusinessWeek:

you wonder whether the iPhone runs any risk of tilting from being the next cool gadget to suddenly being a symbol of excess.

I have a feeling that not just iPhones, but other smartphones will end up looking like “symbol of excess”. If that happens, RIM will probably be affected the most. Unfortunately for RIM, its Blackberry Storm and Blackberry Bold launches are coming in the first quarter after the major financial crisis and as US heads into a recession. Whether RIM will see the same bounce in sales as Apple did, remains to be seen.

All carriers will see further worsening of their ARPU during Q4 2008, according to the IE Market Research Corp.’s 4Q 2008 United States Mobile Operator Forecast, 2008 – 2010 report. In Q208, the ARPU declined by 1.7% across all carriers. However, Sprint and T-Mobile will be more adversely affected as it takes them longer to get a return on their their investments in WiMax and 3G respectively.

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4 Responses

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  1. good information thank you

    madeaw

    October 29, 2008 at 12:25 am

  2. […] mojo with these changes. However, I am not optimistic about their chances. As I recently wrote, the mobile industry is starting to face some headwinds which are expected to get stronger in 2009. Just today, BusinessWeek reported that according to a […]

  3. Excellent blog! Interesting article and very informative! I will necessarily subscribe for this blog. http://movie-cool.com/map.html

    BiilYBonnYU

    November 12, 2008 at 4:00 am

  4. […] their bottom line directly. But all this is at a cost. In Q3 2008, AT&T had to take nearly $1 billion hit to its bottom line due to iPhone subsidies, and that is just for one phone. Surely, the execs at the carriers would be sorely tempted to get […]


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