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thursday 2 february 2012
NEWS
THE MALAY MAIL
Business It’s quite encouraging that LG’s handset business has finally turned around. However, it’ll be hard to imagine a stellar turnaround Greg Noh HMC Securities analyst
LISBON
NEW YORK
Phone leasing plan mooted Customers will get to upgrade annually while telcos save up to 60% costs TELECOM consultant TMNG Global is pushing a phone-leasing service with the promise that it could cut wireless operator’s phone costs by up to 60% and allow consumers to upgrade their phone annually instead of every second year. US service providers currently pay hefty subsidies to smartphone makers so that consumers get phones with a discounted price tag in exchange for signing up for a two-year contract. However, this means that consumers are stuck with the same phone for two years and carriers have to shoulder big upfront costs for the subsidy, which analysts say can be as high as US$400 (RM1,215) for an Apple Inc iPhone. As an alternative, Over-
land Park, Kansas-based TMNG is offering to manage a phone-lease service under which operators would collect a fee of say US$20 a month from subscribers for renting the device instead of charging them an upfront fee to buy the phone. Subscribers would return the phone at year-end in exchange for a new one. As much as 50% of the price of a smartphone could be recouped if it is returned by the subscriber and resold after just a year, according to Tom Murphy, a marketing executive at TMNG. And since phone manufacturers are under pressure to develop new phone models at an ever increasing rate, it would be in their interests to put a new device in consumers’
hands every year instead of every second year. With this in mind, phone makers that wanted to participate could reduce the subsidy price by offering a discount to the upfront cost, Murphy said. “It’s very attractive for the handset makers.” With both of these factors — the phone resale and a manufacturer discount — Murphy estimated that phone subsidies could be cut by 50% to 60% for operators. While carriers don’t tend to disclose the subsidy for specific devices, Verizon Wireless and AT&T Inc made no secret of the fact that iPhone subsidies were the reason for their massive declines in wireless profit margins this quarter. Sprint Nextel is expect-
ed to show similar trends when it reports results on Feb 8. “The biggest value in this is the subsidy reduction,” according to Murphy, who said he expects to be able to announce the first carrier customer for the service this year. He declined to give details except to say that one carrier is further along in moving toward this model than others. While lease arrangements are not typical for the cellphone market, Murphy said that he expects them to become more prevalent as carriers look to cut subsidies and consumers want to avail of an increasing choice of smartphones. UK carrier 02, owned by Telefonica, started leasing the latest iPhone in December. — Reuters
SEOUL
LG returns to profit on handset sales SOUTH KOREA’s LG Electronics Inc, the world’s No 2 TV maker, swung to a profit in the fourth quarter as its latest smartphone model helped its ailing handset unit post a small profit after six consecutive quarterly losses. LG reported yesterday an October-December operating profit of 23 billion won (RM62.1 million), versus a consensus forecast of 64 billion won profit by Thomson Reuters. That compared with a loss of 246 billion won a year ago and a 32 billion won loss in the preceding quarter. LG’s handset business posted 9.9 billion won in operating profit, marking a sharp improvement from a 262 billion won loss a year ago and a 140 billion won loss in the third quarter. “It’s quite encouraging that LG’s handset business has finally turned around,” said Greg Noh, an analyst at HMC Securities. “The profit figure is very small, but earnings will improve going forward as its massive restructuring is finally having some bottom-line impact and its Optimus LTE
model is selling well. However, it’ll be hard to imagine a stellar turnaround.” The turnaround was helped by solid sales of its Optimus LTE model, which runs on Google’s Android platform and is LG’s most popular smartphone with one million sold since its October debut. The firm said handset shipments dropped to 17.7 million in the fourth quarter from 21.1 million in the preceding quarter, as it reduced less profitable feature phones. Its weak results underscore the growing dominance of Apple and Samsung Electronics Co, which has roiled traditional handset stalwarts such as Nokia, Motorola Mobility and HTC Corp. Apple and Samsung together control nearly half of the global smartphone market, according to industry data. LG trails Nokia and Samsung in handsets and competes with Samsung, Sony Corp and Panasonic Corp in flat-screen TVs. LG’s mobile business has been its biggest capital sinkhole, losing nearly US$1 billion since the second quarter
Portugal tests debt market with T-bills Portugal will sell €1.5 billion (RM5.9 billion) in treasury bills (T-bills) overnight in a test of its ability to raise short-term funds after a recent surge in its long-term bond rates raised fears it may be forced to follow Athens and seek a new bailout. The sell-off in Portuguese bonds in the past two weeks has sent yields and the cost of insuring the country’s debts to record highs, testing Lisbon’s resolve as it grinds through its worst economic crisis in decades and imposes sweeping austerity. Any sign that it can still raise short-term financing in markets would be positive, suggesting it may not need to extend terms or ask for more bailout money than its current €78 billion lifeline from the European Union and the International Monetary Fund. Analysts said they expect the country to be able sell the full amount of 3- and 6-month bills, although yields may rise slightly from the last auction on Jan 18. “I think demand will remain strong as the country is issuing short-term debt, which is not very influenced by a rise in long-term yields,” said Filipe Silva, debt manager at Banco Carregosa. “The full amount should be issued and even if the rates rise it won’t be a big problem issuing all of it as
has been done in the past.” On Jan 18, Portugal issued €2.5 billion in treasury bills, with the average yield on 3-month bills at 4.346% and 4.74% for 6-month bills. Overnight, the country will auction 3- and 6-month bills. “I don’t expect big changes from the last auction,” said Rui Constantino, economist at Santander in Lisbon. “It (the auction) may calm some nerves.” Concerns over Portugal have grown ever since Standard & Poor’s downgraded its debt to ‘junk’ status earlier this month, putting it in the same category as only Greece in the eurozone. That and the uncertainty surrounding Athens’ efforts to restructure its debt has fuelled growing worries over Portugal, with some economists saying it could eventually have to restructure its debts as well. But the government insists that it has no intention of extending or asking for a new bailout to top up the existing one, sticking to its strategy of meeting strict budget goals and reforming its economy to boost confidence. The austerity demanded by the bailout, including salary cuts for civil servants and across-the-board tax hikes, has already sent Portugal into its worst recession since the 1970s and left unemployment at its highest level in decades. — Reuters
TOKYO
BRIEFS FAST-SELLING: Models show off the Optimus LTE model, which is credited for the firm’s handset unit posting a small profit after six consecutive quarterly losses
of 2010 and the company announced a near US$1 billion cash call late last year, mainly to prop up its floundering handset division. LG said it aimed to raise 2012 sales by 6% to 57.6 trillion won. Its TV business returned to a profit of 150 billion won, helped by strong sales during the year-end holiday period in the crucial US market. TV makers are grappling with weak consumer demand and cut-throat competition and hope that premium products with slimmer designs,
powerful chipsets and crisp displays will revive growth this year after a flat 2011. Sony warned in November of a fourth consecutive year of net losses for the financial year to end-March, with its TV unit alone set to lose US$2.2 billion on falling demand and a surging yen. LG, one of few profitable TV makers, plans to raise TV sales by up to 17% to 35 million this year and is betting on premium models such as 3D sets and Internet-enabled TVs boost profitability. — Reuters
Sharp cuts profit forecast to zero on weak demand JAPAN’s Sharp Corp posted an 86% drop in nine-month operating profit yesterday and cut its full-year profit forecast to zero, struggling with intense competition in the TV business in a weak global economy. The manufacturer of Aquos LCD TVs reported an AprilDecember operating profit of ¥9.14 billion (RM364.5 million) versus ¥66.51 billion in the previous ninemonth period. Sharp had been expected to post more resilient results than Japanese consumer electronics giants Sony Corp and Panasonic Corp, which
report later this week, aided by strength in large-screen TVs and a 10th-generation LCD panel plant. For the financial year to March, Sharp cut its operating profit forecast to zero from ¥85 billion. That compared with the ¥68.6 billion consensus forecast of 23 analysts polled by Thomson Reuters. It also forecast a ¥290 billion net loss for the full year. Sharp’s shares have fallen 25% since the start of last year, compared with a 14% drop in Tokyo’s benchmark Nikkei average. — Reuters