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Tags: Mobile | Economy | tech | Giants

Tech Giants Stumble Over Mobile Revolution, Bleak Economy

Friday, 19 October 2012 12:43 PM EDT

Mobile may be the future for technology, but even with the worldwide proliferation of high-powered devices like smartphones and tablets, some companies are struggling to maintain consistent revenue streams.

Earnings disappointments this week from Intel Corp., Microsoft Corp., Google Inc. and AMD underscore how Silicon Valley, both the old guard and new, is struggling to profit from consumers' waning love affair with the stalwart PC and infatuation with mobile — the most significant tectonic shift in the industry since the advent of the Internet.

That bodes ill for companies reporting next week that are highly leveraged to mobile advertising and services — most famously Facebook Inc., which raised a tumult by warning about over-inflated expectations of its mobile business just before its seminal IPO.

Amazon and Apple Inc. are expected to fare better, analysts say. Apple, which reports Thursday, is struggling with capacity constraints and supply hiccups — but analysts contend that's a good problem to have because it's spurred by raging mobile hardware demand.

Amazon and eBay Inc., meanwhile, are succeeding in reaching consumers through mobile devices, particularly Amazon with its cut-rate Kindle Fire tablets. About 800,000 shoppers made their first-ever eBay purchase through a mobile device.

But others are struggling.

"Companies are realizing that it is not easy to find a formula that works with mobile," Gartner analyst Carolina Milanesi said. "Mobile is not proving to be as straightforward as people thought."

Signs that some of the most innovative of today's Silicon Valley titans are struggling with how to make money off mobile users come at a bad time for an industry already struggling with a worsening macroeconomic environment.

The biggest stunner was perhaps Google, which shed more than $20 billion of market value after it reported that its core advertising business had slowed. Critics said it was no anomaly.

"Click prices declined for the fourth consecutive quarter after rising for eight consecutive quarters before then. That's a negative. This is the mobile problem," said BGC analyst Colin Gillis.

Then there is Zynga, the poster child for mobile transition woes. In 2011 the casual games maker was a consumer Internet darling. In 2012, it has cut its outlook twice and lost three-quarters of its market value amid a lack of mobile hits, leading analysts to warn of massive layoffs.

Google CEO Larry Page, however, argued the shift represented a long-term opportunity.

"We're really starting to live in a new reality," he told analysts on a conference call. "It will create a huge new universe of opportunities for advertisers, where they ... will be dynamically adapting across a whole bunch of different devices, to reach the right audiences at the right time."

Internet companies in China, the world's largest Internet market by number of users, are also struggling to make money from those who access the Internet from mobile devices. Top China search engine Baidu Inc saw its shares tumble last week after Credit Suisse downgraded it to "underperform" on concerns about its money-making plans.

At the end of June, the number of Chinese users accessing the Internet from mobile phones surpassed those accessing the Internet via personal computer. Because of this trend, many Chinese Internet companies such as social-networking and online games firm Tencent Holdings have upped their mobile Internet offerings in order to capture growth.

"If you look at the evolution of mobile Internet, social networking is usually the first to spread around the world, followed by games and then advertising," said Elinor Leung of CLSA. "You have stages to mobile Internet development, but eventually everyone will be there."


Perhaps hardest-hit are Intel and others closely tied to the PC chain. Intel's weak outlook for the fourth quarter ended any hopes the PC market would pick up at year's end. While Intel dominated that space in its prime, in smartphones its market share is less than 1 percent.

Intel's one-time rival AMD is in even worse shape, saying this week it will cut 15 percent of its staff — more than 1,600 people — as part of yet another restructuring to cut costs while it tries to figure out its future.

On Thursday, Microsoft revealed a 22 percent dive in quarterly profit as sales of computers running its Windows operating system dipped.

Marvell, yet another chipmaker being battered by the lagging PC market, on Thursday cut its revenue outlook by as much as 10 percent as its customers in the storage business suffered.


Those doing best are the one with an established foothold in mobile, having figured it out years earlier.

Verizon Communications posted a record quarterly profit on the strength of the wireless business it co-owns, which came largely from demand for the iPhone.

Apple's ubiquitous handset even figured in the blockbuster $20 billion purchase of a majority in Sprint Nextel Corp. by Softbank Corp. Softbank, the first to offer the phone in Japan, was said to admire Sprint's efforts to bring the device to its own network.

The memory maker SanDisk also easily beat expectations for the third quarter, as demand for chips to be used in smartphones and tablets drove up pricing.

If technology companies only had to deal with a platform transition, that would be one thing. The problem is they are struggling with that transition in the face of a weak economy, when technology upgrades are often the first budget line item to be cut and consumer spending crumbles.

"It seems like the macro conditions certainly deteriorated in the third month, and no tech company will be immune to it," said Trip Chowdhry, analyst at Global Equities Research.

© 2023 Thomson/Reuters. All rights reserved.

Mobile may be the future for technology, but even with the worldwide proliferation of high-powered devices like smartphones and tablets, some companies are struggling to maintain consistent revenue streams.
Friday, 19 October 2012 12:43 PM
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