The past week saw quite a few developments in the mobile sector. Apple’s (AAPL) stock rose at the start of the week on rumors that the company could be looking to return more cash to shareholders, as more details about Einhorn’s lawsuit against Apple came to light. Data about Windows Phone usage stats for the month of February was released, highlighting Nokia’s (NOK) continuing dominance of the WP market and putting to rest concerns about it not being Microsoft’s exclusive partner. Meanwhile, competition in the smartphone chipset market continues to grow, with Broadcom (BRCM) becoming the latest to achieve LTE-compatibility and threatening Qualcomm’s (QCOM) dominance of the LTE-market.
Fresh speculations surrounding the possibility of Apple returning more cash back to shareholders emerged earlier this week, infusing the company’s battered stock with some life. Apple’s shares rose almost 4% after the company issued a statement last Thursday, seeking to clarify David Einhorn’s allegations about a proposed elimination of preferred stock from its charter. The company said that the proposal, which is up for vote at a shareholder meeting February 27, doesn’t preclude the issuance of preferred stock in the future, but merely requires shareholder approval to do so. Further, Apple added that its management has been in active discussions on ways to increase capital allocation to shareholders.
That last bit brought some amount of optimism back, as the raging debate over cash allocation reminded investors of the huge $137 billion cash hoard that Apple has piled on its balance sheet. With the company generating over $50 billion in cash annually, there is a huge possibility of Apple announcing an even bigger dividend or a stock buyback scheme in the future. However, Einhorn believes that the most rewarding would be issuing preferred stock to shareholders, and has already forwarded a proposal to Apple seeking the issuance of preferred stock with a perpetual 4% dividend.
While it would indeed serve as a near-term catalyst to the stock if Apple starts returning more cash to shareholders through whatever means it deems fit, we see the same as having little impact on the company fundamentally. Moreover, the cash allocation would be limited by the fact that Apple has a majority of its cash overseas, as repatriating it would lead to tax concerns (see Apple Benefits From Cash Allocation Talks But It Still Needs A Better China Strategy).
Nokia’s faith in Windows Phone seems to be paying off for now. Not long after Nokia announced a strong set of Q4 results last month, we have AdDuplex’s February issue of Windows Phone usage stats show that Nokia continues to dominate the WP market. According to the report, Nokia has a 78% share of the market, compared to HTC’s 14% and Samsung’s (SSNLF.PK) 6%. What is reassuring for the company is that in the past three months, Nokia has managed to gain a couple of percentage points in market share at the expense of Samsung, as has HTC. Considering that Samsung and HTC are heavily invested in Android, we believe this to be an accurate representation of the amount of commitment that each of these handset makers has towards the Windows Phone platform.
The report helps put to rest concerns about Nokia not benefiting much from going with Windows Phone, given that the handset maker isn’t Microsoft’s exclusive partner. Further, it backs Nokia’s reasoning that Windows Phone has given it a much better chance than Android – at differentiating itself from rivals and surviving in an industry that is dominated by the duopoly of Apple and Samsung. The report also shows why Nokia has steadfastly shown its commitment to Windows Phone despite repeated calls to hedge its bets by developing Android phones as well (see Nokia Remains Windows Phone Top Vendor But Faces Uncertain Outlook).
After a long period of dominance by Qualcomm, the LTE baseband market is finally seeing some competition. Following Nvidia (NVDA) and Intel (INTC), it was Broadcom’s turn to announce the launch of its first LTE-compatible baseband chip on February 12. The company said that its customers are currently testing the LTE baseband, known as BCM21892, but the first devices to sport the modem will be launched only next year when production begins. As a way of differentiating the chip from rivals, Broadcom touted the small size of the modem (the chip takes up 35% less space than its previous offerings), which not only makes it cheaper to produce, but also more power-efficient.
The current baseband market is heavily dominated by Qualcomm, which accounted for almost half of the sales last year. However, the rapidly growing mobile device market has attracted the attention of a diverse set of semiconductor manufacturers, who will all be vying for a greater chunk of the high-growth, high-margin business in the coming years. While the ongoing LTE transition does give the new entrants their best chance at competing more effectively with the market leader, Qualcomm’s smart anticipation of the LTE demand and its proactive moves to get its basebands LTE-compatible much before the rest of the market have helped it ride the initial demand, and should help it hold down the fort in the near term as well (see Broadcom Achieves LTE-Compatibility But Qualcomm Is Hardly Threatened).
Disclosure: No positions.