Semiconductor giant Intel (Nasdaq: INTC) recently forecast that its second quarter revenues would come in ahead of Wall Street expectations at $13.6 billion. The company's optimism is due to the fact that new products would be launched in this quarter which would feature its new processors, including Intel's first to appear in smartphones.
In effect, Intel is betting on a combination of good sales results this year from new markets (smartphones and tablets) for Intel along with the launch of the new Windows 8 operating system from Microsoft (Nasdaq: MSFT), creating excitement in the mature market of PCs where it dominates. But in both areas, Intel will be going head-to-head against chips designed by the UK firm, ARM Holdings PLC ADR (Nasdaq: ARMH). Intel chips have traditionally been faster than Arm chips but are power guzzlers when compared to battery-saving Arm processors.
Windows 8 will be the first operating system from Microsoft that will be compatible with Arm-designed processors. Microsoft expects that factor to help increase sales of Windows 8 markedly. Intel is coming out with its third generation of Core microprocessors, called Ivy Bridge, with which it intends to defend its territory from competitors who will be using manufacturing Arm-designed chips for PCs. Circuit widths in these Intel microprocessors are shrunk from 32 to 22 nanometers (billionths of a meter), offering improved performance.
But perhaps the most interesting part of this growing conflict between Intel and Arm will be to see how well Intel does in areas where Arm is currently dominant, like smartphones and tablet computers. Intel has launched a major advertising campaign aimed at promoting its Ultrabook concept of thin, light laptop computers (as opposed to Apple's MacBook Air) and has plans to supply chips for the tablet computer market soon.
Smartphones are developing into an even more competitive segment. Just this week, the first smartphone powered by Intel-designed Atom microprocessors went on sale. The Xolo X900, from little-known Lava, went on sale in India for $423. The new phone has a single-core 32 nanometer Atom processor now, but a double-core 22 nanometer Atom processor will replace it later this year.
That won't do much for Intel, but the good news is that major companies including Lenovo Group Ltd. ADR (OTC: LNVGY) and Motorola Mobility Holdings (NYSE: MMI) have plans to come out with Intel-based smartphones soon. However, the Lenovo Android phone – the K800 – will only be available in China, so Motorola will be the key partner for Intel's global hopes for its latest version of its Atom processor, Medfield. In January, Motorola did announce a multi-year, multi-device partnership with Intel for Atom-powered phones would kick off this summer.
Intel does have an opening against Arm-based chips, at least temporarily. Rivals like Qualcomm (Nasdaq: QCOM) generally rely on Asian foundries like Taiwan Semiconductor to manufacture their chips. Qualcomm did recently warn that it was having trouble getting enough 28 nanometer chips from its partners in Asia.
Over the long term, one key for success may lie in Intel's ability to shrink its chips further. According to analysts at the research firm ISI Group, sometime at the end of 2013 Intel should be manufacturing 14 nanometer microprocessors for smartphones, giving it a distinct advantage. It remains to be seen if this advantage pans out. After all, ARM will not be sitting by idly.
This article was originally written for the Motley Fool Blog Network. Make sure to read all my daily article for the Motley Fool at http://blogs.fool.com/tdalmoe/.
Wednesday, May 9, 2012
Tuesday, May 8, 2012
US Railroads and the Coal Slump
The US railroad industry has always been the heart of the nation's industrial economy. If the country's major railroads – Union Pacific (NYSE: UNP), Norfolk Southern (NYSE: NSC), CSX (NYSE: CSX) and BNSF, owned by Berkshire Hathaway (NYSE: BRK.B) – were in robust health, it meant good things for the economy.
But does that still hold true today? It may not, thanks to the impact that increased government environmental regulations and decade-low natural gas prices are having on the domestic coal industry.
The US railroad industry traditionally has gotten roughly 20 percent of its volumes from transporting coal, mainly to power utilities, across the country. Overall coal traffic on the rails in the first quarter of 2012 dropped by 14 percent from the year ago period, with revenues derived from coal traffic falling by 5 percent to $832 million. The only thing keeping things from getting worse was a 19 percent rise in coal exports from the first quarter a year ago.
This is significant because of the impact it will have on earnings at the rail companies. Barclays Capital says that for every 1 percent change in the amount of coal they ship, earnings per share will swing 0.2 percent at Union Pacific and 0.5 percent at both Norfolk Southern and CSX. Partially offsetting the effect of coal though will be improvement in other segments.
Rail companies' revenues from transporting shipping containers and the like rose 19 percent to $389 million on a 9 percent gain in traffic. Other key segments including agricultural, automotive and construction rose 10 percent in the first quarter to $1.68 billion on a 3 percent traffic gain. This segment was actually enhanced by the sharply increasing movement of fracking sand, which is used in shale gas and oil drilling, across the country.
The drop in coal shipments by the rail industry to power utilities nationwide may be the beginning of a trend which looks set to continue as long as natural gas remains so cheap. If so, this could mean a rather permanent falloff in railroads' revenues.
The rail companies are well aware of that possibility. Senior executives at CSX were discussing this after revealing that the company's coal shipments in the first quarter to electric power stations were down 28 percent from a year ago. They stated that US railroad companies would have to sit down with power companies across the United States to discuss revising their contractual agreements for delivering coal.
There may be a secular change occurring in the electric industry, where coal is only used for power during peak demand and natural gas is used for the majority of power needs. If so, the railroads do not want to have pay the entire expense of maintaining excess capacity, to deliver coal, which is used only occasionally. The companies want the utilities to share the maintenance costs and thus the need for “discussions” between the two industries.
For investors in these two industries, the results of these upcoming discussions may very well affect the future profitability of both industries and in turn shareholder returns.
This article was originally written for the Motley Fool Blog Network. Be sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
But does that still hold true today? It may not, thanks to the impact that increased government environmental regulations and decade-low natural gas prices are having on the domestic coal industry.
The US railroad industry traditionally has gotten roughly 20 percent of its volumes from transporting coal, mainly to power utilities, across the country. Overall coal traffic on the rails in the first quarter of 2012 dropped by 14 percent from the year ago period, with revenues derived from coal traffic falling by 5 percent to $832 million. The only thing keeping things from getting worse was a 19 percent rise in coal exports from the first quarter a year ago.
This is significant because of the impact it will have on earnings at the rail companies. Barclays Capital says that for every 1 percent change in the amount of coal they ship, earnings per share will swing 0.2 percent at Union Pacific and 0.5 percent at both Norfolk Southern and CSX. Partially offsetting the effect of coal though will be improvement in other segments.
Rail companies' revenues from transporting shipping containers and the like rose 19 percent to $389 million on a 9 percent gain in traffic. Other key segments including agricultural, automotive and construction rose 10 percent in the first quarter to $1.68 billion on a 3 percent traffic gain. This segment was actually enhanced by the sharply increasing movement of fracking sand, which is used in shale gas and oil drilling, across the country.
The drop in coal shipments by the rail industry to power utilities nationwide may be the beginning of a trend which looks set to continue as long as natural gas remains so cheap. If so, this could mean a rather permanent falloff in railroads' revenues.
The rail companies are well aware of that possibility. Senior executives at CSX were discussing this after revealing that the company's coal shipments in the first quarter to electric power stations were down 28 percent from a year ago. They stated that US railroad companies would have to sit down with power companies across the United States to discuss revising their contractual agreements for delivering coal.
There may be a secular change occurring in the electric industry, where coal is only used for power during peak demand and natural gas is used for the majority of power needs. If so, the railroads do not want to have pay the entire expense of maintaining excess capacity, to deliver coal, which is used only occasionally. The companies want the utilities to share the maintenance costs and thus the need for “discussions” between the two industries.
For investors in these two industries, the results of these upcoming discussions may very well affect the future profitability of both industries and in turn shareholder returns.
This article was originally written for the Motley Fool Blog Network. Be sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
Thursday, May 3, 2012
Nokia's Last Hope: Lumia
Mobile phone manufacturer Nokia ADR (NYSE: NOK) is no longer Finland's most valuable company as measured by market capitalization. The latest fall in Nokia's share value came after the company announced a surprise profit warning and technical glitches associated with its new Lumia phones.
Lumia is the first Windows-based phone that came as a result of the collaboration between Nokia and Microsoft (Nasdaq: MSFT). It was jointly launched in the US by Nokia, Microsoft and AT&T (NYSE: T). The problem – it it had difficulty connecting to the internet on AT&T's LTE 4G network – came to light soon after the Lumia 900 phone went on sale in the US.
Even more surprising than the technical problems with its new phone was the surprise profit warning. Nokia warned that its low-end phone division – which had always enjoyed great success in the emerging markets – was losing market share much faster than expected. Sales in this division sank 35 percent in the first quarter to about $3 billion.
Low-end phones, which make up 30 percent of Nokia's sales, lost market share to both Chinese manufacturers and devices using the Android operating system from Google (Nasdaq: GOOG). The loss of market share, particularly to Samsung's Android devices, is in large part due to the fact that Nokia is dumping its current operating system, Symbian, rendering those phones obsolete in a few short years.
These recent events just continue to emphasize the fact that Nokia has been left behind in the smartphone race in the last few years. Nokia's decline has left its shareholders smarting. Its stock sank by a fifth just last week after the bad news, leaving it down 90 percent from its peak since the iPhone from Apple (Nasdaq: AAPL) was launched in 2007.
Perhaps the last hope for the company lies in its tie-up Microsoft and the resulting Lumia phones. It has not been an auspicious start for Lumia, however. Even ignoring the technical glitches, initial sales (launched in November globally) of the Lumia range of phones have been disappointing. In the first quarter of 2012, only 2 million Lumia phones were sold. In comparison, Apple sold 37 million iPhones during the same period.
It remains to be seen whether the Lumia 900, with its very reasonable $99 price tag here in the US, will sell. Nokia has even been forced to offer a $100 credit on phone bills to anyone who buys it before April 21 in an effort to stimulate dull US sales so far. Of course, both Microsoft and AT&T are hoping Lumia succeeds too.
The lack of success so far for Lumia certainly calls into question whether consumers really want a Windows-based smartphone. If it turns out they do not want Windows-based phones, the tie-up with Microsoft has sealed Nokia's fate as it now has no future options except producing Windows phones.
Some investors already think the company is doomed as the cost of insuring the company's debt soared to a record high, implying that Nokia's debt was already considered to be “junk” status. The company is not dead yet though and still has net cash of 4.9 billion euros. However, it did burn through 700 million euros in the first quarter and has stated that it must continue spending heavily on marketing the new Lumia phones. So Nokia shareholders should not be surprised to see the dividend eliminated soon.
If the company burns through its cash pile, it may resort to selling assets in an effort to keep afloat. These assets could include mapping technology company Navteq or perhaps even some of its intellectual property rights. But if Lumia phone sales don't pick up some time this year, Nokia itself may be up for sale to Microsoft or other bidders. That would be a sad end for a company that once dominated the mobile phone industry.
This article originally was written for the Motley Fool Blog Network. Please make sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
Lumia is the first Windows-based phone that came as a result of the collaboration between Nokia and Microsoft (Nasdaq: MSFT). It was jointly launched in the US by Nokia, Microsoft and AT&T (NYSE: T). The problem – it it had difficulty connecting to the internet on AT&T's LTE 4G network – came to light soon after the Lumia 900 phone went on sale in the US.
Even more surprising than the technical problems with its new phone was the surprise profit warning. Nokia warned that its low-end phone division – which had always enjoyed great success in the emerging markets – was losing market share much faster than expected. Sales in this division sank 35 percent in the first quarter to about $3 billion.
Low-end phones, which make up 30 percent of Nokia's sales, lost market share to both Chinese manufacturers and devices using the Android operating system from Google (Nasdaq: GOOG). The loss of market share, particularly to Samsung's Android devices, is in large part due to the fact that Nokia is dumping its current operating system, Symbian, rendering those phones obsolete in a few short years.
These recent events just continue to emphasize the fact that Nokia has been left behind in the smartphone race in the last few years. Nokia's decline has left its shareholders smarting. Its stock sank by a fifth just last week after the bad news, leaving it down 90 percent from its peak since the iPhone from Apple (Nasdaq: AAPL) was launched in 2007.
Perhaps the last hope for the company lies in its tie-up Microsoft and the resulting Lumia phones. It has not been an auspicious start for Lumia, however. Even ignoring the technical glitches, initial sales (launched in November globally) of the Lumia range of phones have been disappointing. In the first quarter of 2012, only 2 million Lumia phones were sold. In comparison, Apple sold 37 million iPhones during the same period.
It remains to be seen whether the Lumia 900, with its very reasonable $99 price tag here in the US, will sell. Nokia has even been forced to offer a $100 credit on phone bills to anyone who buys it before April 21 in an effort to stimulate dull US sales so far. Of course, both Microsoft and AT&T are hoping Lumia succeeds too.
The lack of success so far for Lumia certainly calls into question whether consumers really want a Windows-based smartphone. If it turns out they do not want Windows-based phones, the tie-up with Microsoft has sealed Nokia's fate as it now has no future options except producing Windows phones.
Some investors already think the company is doomed as the cost of insuring the company's debt soared to a record high, implying that Nokia's debt was already considered to be “junk” status. The company is not dead yet though and still has net cash of 4.9 billion euros. However, it did burn through 700 million euros in the first quarter and has stated that it must continue spending heavily on marketing the new Lumia phones. So Nokia shareholders should not be surprised to see the dividend eliminated soon.
If the company burns through its cash pile, it may resort to selling assets in an effort to keep afloat. These assets could include mapping technology company Navteq or perhaps even some of its intellectual property rights. But if Lumia phone sales don't pick up some time this year, Nokia itself may be up for sale to Microsoft or other bidders. That would be a sad end for a company that once dominated the mobile phone industry.
This article originally was written for the Motley Fool Blog Network. Please make sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
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