Robert W. Baird said it has compiled a brief recap of the initial fourth quarter big-cap wireless winners and losers. With many of the major wireless players having reported, including almost all of the major handset original equipment manufacturers, the brokerage has included key initial thoughts.
Apple and HTC remain our top picks overall. Highlights for the quarter included blowout results from Apple, strong wireless results and guidance for Verizon, and stronger-than-expected revenue from Ericsson and Nokia Siemens Networks for the first time in many quarters, perhaps suggesting better times ahead for wireless infrastructure, said William Power, an analyst at Robert W. Baird.
In the Smartphones division, the winners are Apple and HTC on strong results and guidance, while the losers are Nokia and Motorola Mobility.
Apple Inc.'s (AAPL) results crushed expectations, driven by ongoing iPhone and iPad strength, along with China. Apple shipped 16.2 million iPhones, increasing 85.8 percent year-over-year, and 7.3 million iPads, which grew 75.0 percent sequentially.
Apple's first quarter revenue of $26.7 billion beat our forecast of $24.4 billion and grew 71 percent year-over-year. An adjusted gross margin of 38.7 percent beat our 36.9 percent forecast and guidance of 36 percent. EPS of $6.43 also handily eclipsed our $5.30 estimate and consensus, said Power.
Power said Apple guided to second quarter revenue of about $22 billion, a gross margin of 38.5 percent, and EPS of $4.90. Additionally, the company said that it does not expect iPhone ASP to decline materially from fiscal Q1 to fiscal Q2, which should allay concerns that the Verizon iPhone could be dilutive to iPhone ASP.
HTC also posted strong Q4 results and solid Q1 guidance, driven by ongoing Android momentum. HTC shipped 9.1 smartphones in Q4, sequential and year-over-year growth of 33.8 percent and 160.0 percent. The company's revenue was roughly in-line with Power's Street-high estimate, above guidance and consensus.
Nokia (NOK) continues to lose smartphone share and Motorola Mobility (MMI), which we don't cover, is already experiencing slowing sales at Verizon, due to the iPhone launch. This is likely to negatively impact the Blackberry maker Research In Motion Ltd. (RIMM) as well, said Power.
Motorola Mobility shipped 11.3 million total handsets, declining 5.8 percent year-over-year due in part to a mix shift away from feature phones. Smartphone shipments of 4.9 million surged 145.0 percent year-over-year.
Motorola Mobility noted that it has begun to see a slowdown in sales at Verizon due to the iPhone, but still forecast 23 million combined smartphone and tablet shipments for the year. Increasing carrier and geographic diversification should benefit the company. The company expects consolidated operating earnings to be in a range around breakeven for Q1.
Nokia's total shipments of 123.7 million actually declined 2.5 percent year-over-year. Smartphone shipments of 28.3 million grew 36.1 percent year-over-year, though the company's share fell from 39.7 percent a year ago to 31.3 percent in Q4. All eyes are on its February 11 analyst day.
In the Carriers division, Verizon Communications Inc. (VZ) is the winner on stronger wireless results and stronger EPS guidance, while AT&T, Inc. (T) loses on disappointing wireless results and guidance.
Verizon again demonstrated its resiliency and balance without the iPhone, which could raise the stakes that much more once it begins selling the iPhone on February 10, Robert W. Baird said in a statement.
Verizon led the industry with 872,000 postpay net additions, beating Power's estimate of 653,945. EBITDA margins of 47.5 percent also topped expectations. Consolidated revenue of $26.4 billion and EPS of $0.54 were slightly below Power's estimate of $26.5 billion and $0.55, due in part to slightly lower wireline revenue.
Verizon guided to 4 percent to 8 percent revenue growth and 5 percent to 8 percent EPS growth in 2011, even with anticipated iPhone dilution. 2012 EPS is expected to grow at a rate double that of 2011.
AT&T's trades at a meaningful price-to-earnings discount, though that may not narrow until investors gain confidence that AT&T has successfully navigated the Verizon iPhone launch, which is a road with many potholes.
AT&T's postpay net additions of 400,000 missed our 453,156 forecast, though total net additions of 2.8 million led the industry, driven by connected devices. EBITDA margins of 37.6 percent also missed our estimate. Consolidated Q4 revenue of $31.4 billion missed our $31.5 billion estimate, though EPS of $0.55 beat our $0.54 estimate. AT&T guided to continued wireless and wireline margin expansion, though it called for mid-single-digit EPS growth, which missed expectations, said Power.
Power said that for the first time in recent memory, wireless infrastructure revenue surprised to the upside, driven by improving trends in India, China and continued strength in North America. Upgrades to 3G in developing markets and 4G in developed markets could drive better-than-previously-expected growth in 2011. However, it still remains a hyper-competitive markets, with Huawei and ZTE likely to continue taking share.
AT&T and Verizon both guided to higher wireless capex in 2011, which should benefit the major wireless infrastructure providers. Ericsson and Nokia Siemens Networks both reported Q4 revenue above expectations, with India, China and North America all helping.
Given the rapid shift to wireless, including backhaul, wireline focused vendors are likely to face an increasingly tough road. AT&T and Verizon both expect wireline capex to fall again in 2011.