The shift to mobile challenges tech firms


Sun, Jul 28, 2013 - Page 13

With the shift to mobile Internet gaining pace, some big tech firms are adapting and others are not.

The latest earnings from the sector show that mobile is hitting the bottom line, either in positive or negative ways.

Facebook’s quarterly report this week showed how the world’s biggest social network profited from that shift, as it delivered earnings of US$331 million and drew 41 percent of its ad revenues from mobile.

Shares jumped 30 percent after the earnings, helping Facebook approach its price after its public offering in May last year.

For Microsoft, it was a different story, as the shift to mobile devices hurt its core Windows franchise, and the Surface tablet hit the market with a thud, forcing an “inventory adjustment” writedown of US$900 million, limiting profits to US$4.97 billion.

Microsoft shares slid more than 11 percent after the news, which fueled concerns about its future in a post-PC world, despite its Windows 8 operating system designed for a range of devices.

The research firm Trefis said the tablet market is growing rapidly while PC sales are slipping.

“Since the competitive tablet industry has already established products such as Apple’s iPad and Google’s Android tablets, Windows 8 faces strong headwinds as it tries to increase market penetration,” the firm said in a note.

Gerry Purdy, analyst with the research firm MobileTrax, said companies need to start thinking about mobile first, and that Facebook successfully did so.

“Mobile is becoming the center of the information technology world,” he said. Purdy added that Microsoft has not produced the best user experience in its tablets or in Windows-power phones.

Google delivered mixed results for the past quarter, taking a loss from the Motorola handset unit it acquired last year and seeing slower growth from its mobile ads.

Yet Google — which saw its profits rise modestly to US$3.23 billion — gets less on a “cost-per-click” basis, according to analysts.

Google shares took a modest hit as analysts questioned whether it can maintain growth.

“Google remains among the most innovative tech concerns, and the best digital advertising tool in our view, however, Google’s earnings have yet to materially expand beyond search,” Daniel Ernst at Hudson Square Research said.

Amazon’s shares recovered from initial weakness after the online retail giant reported a surprise loss of US$7 million, when most observers were expecting a modest profit.

The results showed Amazon investing heavily in marketing, technology and content as it seeks to expand its footprint and digital content offerings while promoting its Kindle line of tablets.

Daniel Kurnos, analyst at the research firm Benchmark, said Amazon’s big investments are cutting into short-term profits, but positioning the company for global growth with more digital content like ebooks and television shows.

The results “highlighted what we view as the inherent leverage in the model as the sales mix also shifts away from physical and into digital content,” he said.

Meanwhile, Apple, which is the pre-eminent mobile company with its iPhones, iPads and iTunes, managed to beat Wall Street estimates with a profit of US$6.9 billion thanks to strong smartphone sales.

However, many analysts look to the future and wonder whether its pace of innovation will keep it ahead of rising competitors.

The California giant has been losing market share in smartphones and tablets, which threatens its ecosystem.

Nicholas Landell-Mills at Indigo Equity Research said of Apple: “Its products are no longer cutting edge. It has failed to introduce sufficiently innovative product updates and services frequently enough [or] expand its limited product range.”

“Competition has caught up and product fatigue is setting, pressuring growth and margins. Apple is making similar errors to those previously made by Nokia and Motorola, including hubris,” he said.