What’s going on in Phoneland?

Connecting the dots on some news stories from Phoneland.
First, the CEO of Ericsson has been sacked:

Kim McLaughlin, Ericsson Ousts Vestberg as CEO After Turnaround Plans Stall
Vestberg’s departure caps a turbulent period for Ericsson, which is cutting jobs while battling fierce competition from from Huawei Technologies Co. and Nokia Oyj. The company said last week it would accelerate cost cuts after reporting four straight quarters disappointing revenue and profit. Vestberg has faced questions on probes into alleged corruption in Asia and Europe, and last week the company rejected a report in Swedish media that it may be inflating sales by booking revenue before some clients are invoiced.

As usual, that’s the proximate cause, but the deep structure is that 4G tech has been rolled out worldwide already, and no one’s buying much these days.

With much of the so-called fourth-generation networks already built in the U.S. and China, Vestberg had vowed to improve profitability, but the stock has declined since reaching a more than seven-year high in April last year.
Vestberg had carved out new business units targeting media and enterprise customers to get back to growth, while investing in a next generation of so-called 5G wireless technology, which represents the next wave of spending at Ericsson’s telecom carrier customers. However, he refrained from big, dramatic moves like Nokia’s purchase of Alcatel-Lucent SA, opting instead for a partnership with Cisco Systems Inc. for Internet products like routers.

So, he’s out for thinking small bore, and we’re seeing the hiccups from the 4G/5G transition in Phoneland.
Second story: Steven Russolillo says that Apple is ripe for a Rally, despite the fact that market watchers are negative on the giant:

Much of the bearish thesis is due to weakening iPhone sales, which account for more than half of revenue. The iPad isn’t selling as well as it used to and the jury is out on the Apple Watch. Tech investors are allergic to anemic growth, which explains why the tech-heavy Nasdaq has lagged behind the Dow industrials and S&P 500.
Still, Apple has been punished more than enough. The iPhone slump appears priced in. And while the next iPhone, expected later this year, likely won’t be a significant upgrade, there is optimism that sales growth will soon bounce back. Analysts forecast iPhone unit sales will rise 5% for fiscal 2017, which ends next September.

The real question is not about stock price (or profits, either, with $10.52 billion in the March quarter), but about consumer buying behavior. Will we have to wait for a new mobile device — like AR/VR goggles? — before there is another huge surge in consumer demand for mobile? Watches aren’t the future, but goggles will be, I bet. Not a 2016 trend, though. Maybe 2017?
The third and last data point for today: Aaron Pressman digs into AT&T’s efforts to convince Wall Street its wireless business is healthy. His argument reviews the standard argument that postpaid subscribers — the ones signed up for monthly accounts — are generally considered to be better sources of reliable revenue than prepaid subscribers, who generally ‘spend less for service, buy cheaper phones, and tend to defect to other carriers more frequently’.

The bottom line is that so far this year, AT&T’s postpaid subscribers grew only 1% while prepaid subscriptions increased 21%. That’s disturbing to Wall Street, based on the ruling assumption that postpaid customers are preferable.
Thus, Stephens has been trying to push some new math on the analysts. In essence, his argument is that the best customers in prepaid are actually a lot better—and more profitable—than the worst customers in postpaid.
The average service revenue AT&T collected from postpaid customers who have left—and who mostly had not upgraded to smartphones yet—was only $35, he said during a conference call with analysts on Thursday afternoon. But the new prepaid customers signing up with Cricket are bringing in “closer to a $41, $42” of average revenue. Additionally, it costs less to acquire a new prepaid customer and less to provide them with customer service, he noted.
“So from that standpoint, the economics are better, and it is being shown in our margins,” Stephens told analysts, pointing out that while total wireless revenue was down slightly, profit margins were at record highs.

So AT&T has landed in a different dimension, where the economics are reversed, with T-Mobile and others screwing up the numbers for postpaid, while the supposedly poor prepaid sector looks good. However, this may be only true for a short transient period.
And the back office transitions around cable and internet, suggest other churn as the world is turning:

The telco is shedding expensive-to-maintain cable TV customers at its U-Verse unit while adding less costly satellite TV customers for DirecTV. AT&T is dropping broadband Internet customers who connect via older DSL lines while trying to add fiber optic broadband customers. And it’s trying to move corporate customers from traditional managed networks to cheaper virtualized networks. If all of the transitions succeed, both revenue and profits should grow.

Putting all the dots together? The consolidation in Phoneland is accelerating. Old technology is maturing, while new technologies and business models are only slowly emerging, which is leading to the downdraft at Ericsson, and financial analyst disdain for Apple and AT&T. The slowing rate of purchasing — by telcos and consumers, both — is leading to consolidation, the classic market maturation that comes right before a new era of breakthroughs and growth. But those breakthroughs won’t be in 2016.

Why it makes sense that Huawei could make the next Nexus

Here’s an interesting rumor out of China: iSuppli researcher Kevin Yang posted on Weibo on Wednesday that Huawei will be making a Nexus device this coming fall. The post has since been deleted.

Huawei isn’t a household name in the United States, but it actually makes a good deal of sense that Google would contract with the Chinese electronics giant. Here’s why:

Huawei has promised its American phones will come with stock Android

Speaking to the Verge, Huawei’s consumer boss Richard Yu said that Huawei’s stateside phones will come with “stock Android” instead of Huawei’s version because “American consumers trust Google.”

“If you have a problem you can check with Google,” Yu told the Verge. That sounds a lot like Huawei phones will be able to tap into Google Play support, like the Device Assist app, which is only available for certain devices, such as the Nexus line, usually sold directly by Google.

In fact, given that Huawei seems so fixated on consumer cachet — Yu called Xiaomi a “low-end” brand — breaking into the American market with a device that can be purchased directly from Google seems like a good introduction to savvy consumers.

Huawei Mate 7

Huawei Mate 7

Huawei already makes expensive phones

Although Nexus devices from years past have been affordably priced, last year’s Nexus 9 tablet and Nexus 6 smartphone were priced at $399 and $649 respectively — as expensive as anything out there.

Huawei, as opposed to rivals like Xiaomi, makes expensive phones. Although it makes affordable devices too, it’s concerned with the high-end of the market. The Ascend Mate 7, Huawei’s flagship, costs as much as 3699 RMB ($590). If Google is still positioning Nexus devices as the best that Android can offer as well as developer devices, Huawei is a good fit.

Huawei is a big company, and would be able to handle a Nexus order — it shipped 75 million smartphones last year. It can certainly deliver premium fit and finish, judging by its new Android Wear smartwatch.

huawei watch official

Fingerprint scanners

At one point, the Motorola-made Nexus 6 was supposed to come with a fingerprint scanner in the place of the dimple in its back, but it was cut for some reason. There hasn’t been a recently released Motorola phone with a fingerprint scanner, probably because the available technology hasn’t been good enough. (You’d have to go back to the Atrix, which came out in 2011, to find one.)

Huawei-Ascend-Mate-7-fingerprint-01

Aside from Samsung and Apple, Huawei has done more with smartphone-mounted fingerprint scanning than any other smartphone maker. The Ascend Mate 7 has a fingerprint scanner on its back — close to where the Nexus 6 would have had one — and it’s pretty good. It doesn’t require users to swipe their fingers, instead, it only needs a tap, like Samsung’s new scanner and Apple’s Touch ID.

If Google is serious about mobile payments — and given the rumors about Android Pay and its recent purchase of Softcard, it certainly is — then it will need to introduce biometric security to more Android devices. This means that it’s a safe bet that the next Nexus will have a fingerprint scanner, and Huawei has proven it can provide one.

Why it might not happen

Huawei designs its own ARM-based processors, which are named Kirin. Although Android is designed to work on top of all sorts of chips, it’s difficult to imagine that Google’s next developer device would eschew a Qualcomm chip, which has been the go-to supplier for years.

It also seems a bit early for Google to be locking down Nexus suppliers. The first murmurs about Motorola making the Nexus 6 surfaced last July, after Google’s annual developer’s conference.

Also remember that Google was rumored previously to be working on a “Silver” line of devices with Google support and stock Android. Although that plan seems to have been scrapped, there’s still a chance that Huawei’s new device could be one of many Google-directed phones and tablets coming out this fall.

Huawei: No-one ever asked us to help them spy on people

Make of it what you will, given that Huawei was founded by an ex-Chinese-military engineer and has had lots of mud thrown at it from the West, but the telecoms equipment firm maintains it’s never been leaned on by any government or agency anywhere, ever.

In the foreword to a security white paper released on Friday, Huawei deputy chairman Ken Hu said the firm had never been asked to change hardware or software, provide access to its technology, or offer up people’s data. That’s certainly a poke in the eye for companies operating in the U.S., which have to abide by the CALEA backdoor rules and cooperate with surveillance programs.