WEEK ENDING
JULY, 19 2013
INSIDE THIS ISSUE:
THIS WEEK’S STORIES
HTC Officially Launches HTC
One mini
Microsoft Sinks 11% on
Earnings Miss and Huge
Surface Write-Down
PRODUCTS & SERVICES
Verizon iPhone Sales Soar
44%
Weekly Wireless Report
This Week’s Stories
HTC Officially Launches HTC One mini
July 18, 2013
Following months of rumors, HTC has officially added to its smartphone fleet with a compact version of
its flagship HTC One. Dubbed the HTC One mini, the phone maintains many of the features found on
the HTC One but shrinks some of the specs.
The mini shows up packing new software features like HTC Blinkfeed—the company’s live-tiled
homescreen—as well the BoomSound dual-front speakers and the Zoe camera functionality.
EMERGING TECHNOLOGY
But true to its name, the mini’s measurements fall below that of its big brother. The mini sports a 4.3inch, 720p display as opposed to the One’s 4.7-inch full 1080 variation. Slimmed down from the One’s
Snapdragon 600 quad-core processor, the mini rocks a smaller dual-core model but still clocks at an
impressive 1.4 GHz.
The mid-tier guts of the mini spell out in 16 GB of storage, 1 GB of RAM, and a 1,800 mAh battery. It
adds up to a lighter phone weighing in at 122 grams, compared with the One’s 143 grams.
Microsoft Working on LTEPowered Surface
Smartwatch
Like the One, the mini features the UltraPixel camera with a 1/3-inch sensor, but the mini’s front-facing
camera only packs 1.6 megapixels—the One has 2.1MP on its front-facing lens.
Nokia Takes 2Q Hit on Weak
Device Sales
The Lernstift Smartpen
Checks Your Spelling as You
Write
MERGERS &
ACQUISITIONS
Dell $24.4 Billion Buyout
Plan Is a Nail-Biter as Vote
Looms
Hulu Still a Tease When
Suitors Come Calling
INDUSTRY REPORTS
Report: Samsung Accounts
for Nearly Half of All Android
Web Traffic in U.S.
With the official announcement of the HTC One mini, HTC is following an emerging trend toward
offering a slimmed-down version of a flagship phone. Samsung released a “mini” version of its Galaxy
S4 phone and Apple is widely rumored to be coming out with an “iPhone Lite” to go alongside the
upcoming new iPhone “5S.”
The HTC One mini will be available in select markets starting in August before getting a worldwide
release in September.
wirelessweek.com
Microsoft Sinks 11% on Earnings Miss and Huge Surface
Write-Down
July 19, 2013
Microsoft took a big write-down on its highly touted but poorly adopted Surface tablet last quarter,
causing the company to badly miss Wall Street analysts' profit expectations.
The Redmond, Wash., based software giant said Thursday that its fiscal fourth-quarter net income rose
to $5 billion, or 59 cents per share. Analysts polled by Thomson Reuters forecast Microsoft earnings of
75 cents per share.
Sales rose 10% to $19.9 billion, also falling far short of the $20.7 billion analyst had forecast.
Shares of Microsoft fell 11% on Friday.
Page |2
Results were negatively impacted by a whopping $900 million write-off of Microsoft's Surface RT
inventory. Microsoft recently knocked $150 off the price of the tablet, which debuted in October and
initially sold for $500. It is the first PC designed by Microsoft, but the company says its own devices will
become a big part of the company's strategy going forward.
Following the sweeping reorganization of the company earlier in July, which no longer divides
Microsoft's business units according to specific products, the challenge for the company's management
will be to strengthen that devices side of its operations.
Devices boss Julie Larson-Green faces a host of challenges to get that job done. First, she'll have to
help produce a Surface tablet that can transition Microsoft into the post-PC market amid slumping PC
sales. She also must also fix the current public perception of the Xbox One video game console, which
has been a PR nightmare for a variety of reasons, ranging from privacy snafus to digital rights
management of content.
With the Surface failing to catch on, software chief Terry Myerson must figure out where the Windows
RT platform -- a variant of Windows 8 designed for tablets -- fits into Microsoft's future strategy. In
addition to the shortcomings of the Surface RT, few hardware partners supported the platform when it
was introduced last year. Lenovo, Samsung and others have since stopped producing RT devices.
Microsoft hasn't helped its cause by failing to properly explain what differentiates Windows RT from
Windows 8. As a result, hardware makers have largely settled on Intel-based hybrid devices that are
neither great tablets, nor great PCs, which hurts Microsoft's Windows strategy. Acer, for example,
recently released the first eight-inch Windows tablet opting to use Windows 8 instead of the RT platform
-- a stinging blow to Microsoft's RT hopes.
Still, Microsoft's director of Investor relations Lisa Nelson says that Microsoft is fully committed to
Windows RT, pointing out a three-fold increase in the number of markets where Surface RT is available
since last year.
Microsoft CEO Steve Ballmer also touched on the importance of devices for Microsoft going forward.
"We are working hard to deliver compelling new devices and high value experiences from Microsoft and
our partners in the coming months, including new Windows 8.1 tablets and PCs," said Microsoft CEO
Steve Ballmer, in a prepared statement.
Microsoft is placing most of the blame for its performance on slumping PC sales, but is still encouraged
by business from its corporate customers and results from many of its services.
Though Microsoft had little to offer on Skype financials, it did mention that usage of the service is higher
than ever. Microsoft also said it is still encouraged by Xbox Live subscription sales.
Microsoft says its Office 365 service is growing at a satisfactory rate with 1.5 million subscribers and
expects Office to be successful in the long term. But excluding deferred revenue from a recent upgrade
offer, Office sales would have plummeted 27% last quarter.
Rival Google also reported disappointing earnings and sales on Thursday.
money.cnn.com
Products & Services
Verizon iPhone Sales Soar 44%
July 18, 2013
Verizon Wireless on Thursday said it activated far more iPhones than expected last quarter, drastically
outpacing the number of Apple smartphones it sold in the same timeframe last year.
Page |3
America's largest wireless carrier activated 3.9 million iPhones during the second quarter, 44% more
than the 2.7 million iPhones it activated in the second quarter of 2012. Verizon's iPhone sales were well
above Wall Street's estimate of 3.5 million. Just over half of Verizon's smartphone activations were
iPhones last quarter.
Those are potentially encouraging numbers ahead of Apple's quarterly earnings report on July 23.
Apple is expected to have sold just about as many iPhones last quarter as it did a year earlier --nothing close to the 44% growth Verizon saw.
But U.S. wireless carriers haven't proven to be the strongest indicator of overall iPhone sales in the
past. In the first quarter of 2013, for instance, Verizon's iPhone activations grew by 25%, but Apple's
iPhone sales grew by less than 7%. In April 2012, both Verizon and AT&T reported disappointing
iPhone sales that fell 44% and 24% respectively from the previous quarter -- but that evening, Apple
said quarter-over-quarter iPhone sales fell by just 5%.
Verizon also reported Thursday that it activated 7.5 million smartphones during the second quarter,
about a quarter of which were for new Verizon customers. The company is just about done with its 4G
network rollout, which is already having a huge impact on the amount of data customers download.
Verizon said that a third of its devices are on the 4G network, but 4G accounts for nearly 60% of the
company's data traffic.
That could pay off for Verizon down the road, as customers begin paying more and more for those
gigabytes.
The second quarter wasn't all sunshine and roses for Big Red, though. The company said its wireless
service profit margin came in at 49.8% -- up from a year ago, but far below Wall Street's expectations.
Kevin Smithen, an analyst at Macquarie Securities, attributed the disappointing margin to increased
spending on marketing during the quarter in the wake of new promotions from rival carrier T-Mobile.
Shares of Verizon fell about 2% on the news.
money.cnn.com
Nokia Takes 2Q Hit on Weak Device Sales
July 18, 2013
Sliding device sales resulted in a fairly flat second quarter for Nokia. The Finnish phone maker reported
sales of $7.4 billion, down three percent quarterly and 24 percent annually. Contributing to the lackluster
revenue was a reported $3.5 billion in device sales, down six percent quarterly and a whopping 32
percent annually.
A big factor in the somewhat weak device sales was slumping feature phone sales, down 12 percent
quarterly and 39 percent annually. It’s been a common theme for Nokia as the company has lost ground
in feature phone-heavy emerging markets to OEMs like Samsung.
But Nokia’s smartphone sales held steady quarter-over-quarter and the company has reason to be
cautiously optimistic about its Lumia line of Windows phones. The handset manufacturer has conjured
some genuine excitement with the announcement of the Lumia 1020, a Windows 8 phone featuring the
second-generation of Nokia’s 41-megapixel PureView camera.
Nokia noted that Lumia volumes had swelled to 7.4 million in the second quarter, the highest they’ve
ever been.
Nokia CEO Stephen Elop was encouraged by the performance of Nokia Siemens Networks, which
posted steady quarterly sales and a non-IFRS operating margin of 11.8 percent.
Page |4
“With our recent announcement to purchase Siemens’ 50% stake in Nokia Siemens Networks, we
believe we will create value for Nokia shareholders and look forward to strengthening Nokia Siemens
Networks as a more independent entity,” Elop said in the release.
In the U.S. in pre-market trading, Nokia shares were down nearly four percent as of 8:09 a.m. CT.
wirelessweek.com
Emerging Technology
Microsoft Working on LTE-Powered Surface Smartwatch
July 15, 2013
The race to put out a smartwatch consumers may or may not want has a new contender in Microsoft.
The Verge, citing sources familiar with the Microsoft’s plans, said the company’s Surface team is now
prototyping devices.
The report also cites details from AmongTech that claim the wearable device could feature 6 GB of
storage and LTE support. The same report mentions the device could be built from a “translucent
aluminum” that is much harder than glass.
Microsoft’s rumored smartwatch plans join an already crowded field of purported wristwatch devices in
the works. The rumor mill is working hardest on Apple’s reported “iWatch,” with a recent Financial
Times report [subscription required] suggesting that Cupertino is aggressively hiring talent to aid in the
device’s development.
Samsung and Google are also rumored to be putting together a smartwatch and Sony has an Androidbased smartwatch nearly ready for release.
The hype surrounding smartwatches seemed to start around the time that Pebble, a Kickstarter-funded
smartwatch, gained traction. The Pebble has since sold 275,000 units through its Kickstarter, seen
more than one million apps downloaded and moved into retail with a spot on shelves at Best Buy.
wirelessweek.com
The Lernstift Smartpen Checks Your Spelling as You Write
July 19, 2013
Wher woud some of us bea withoot spell check?
The sometimes annoying, but frankly indispensable computer aid has spared billions of typographical
blushes.
Now, an ingenious prototype pen developed by a German start-up is promising to give our longhand
writing a similar sort of safety net.
Lernstift (German for "learning pen") is a digital pen with a difference, carrying not only ink inside its
casing but also a tiny computer that alerts users to spelling errors.
Daniel Kaesmacher, co-founder of Lernstift told CNN: "Basically there are two functions. The calligraphy
mode which helps you correct individual letters, and the orthography mode which vibrates when a word
is misspelled."
The AAA battery-powered Linux computer includes a vibration module and a patent pending non-optical
motion sensor which recognizes specific movements and shapes of letters and words.
The pen employs a menagerie of sensors, including a gyroscope (for measuring orientation),
accelerometer (for calculating propulsion) and magnetometer (a device that measures the strength and
direction of magnetic fields) -- all to calculate the pen's 3-D movements.
Page |5
Lernstift recognizes all writing movements, the company says, written on paper or in the air and built-in
Wi-Fi allows scribblers to connect with smartphones, computers or other pens in a network.
The pen was invented by software developer and Lernstift founder Falk Wolsky after seeing his wife's
frustrations at watching their son struggle with his homework. Why can't pens give instant feedback on
mistakes? she asked.
His imagination fired, Wolsky set about constructing a prototype before assembling a team of hardware
and software experts late last year.
"We are at the stage where the individual components do their job. We haven't put it together yet, but
the response to the idea though has been overwhelming," Kaesmacher said.
The pen has been designed primarily as an educational tool and the Munich-based company is hopeful
that dyslexic children will find the new pen particularly useful.
Greg Brooks, Professor Emeritus of Education at the UK's University of Sheffield gave the pen a
cautious welcome.
"It's a neat idea in principle, but as ever the proof will be in the using of it," Brooks said via email.
"Will it learn individuals' quirks of handwriting, or insist on one style? I can see how it might be
programmed to spot obvious spelling errors (non-words), just as the spellcheckers in word processors
do -- but none of those can yet cope with real-word errors."
A Kickstarter campaign recently got underway looking to raise £120,000 ($180,000) and tests in schools
will begin later this year.
The first pens will initially recognize only English and German spellings, but other languages will follow,
says Kaesmacher.
"Learning your native language is one thing, but it's also the perfect tool to adapt for foreign language
students," he says.
"From a cultural point of view, the pen is a wonderful bridge between cursive and technological worlds."
Eventually, the company plan to offer pencil, fountain and ballpoint pen options with a launch price
between €120-150 ($160-200) falling to under €50 ($60) depending on how fast the company grow.
cnn.com
Mergers & Acquisitions
Dell $24.4 Billion Buyout Plan Is a Nail-Biter as Vote Looms
July 18, 2013
When Michael Dell announced a plan in February to take Dell Inc. private, today was supposed to be
anticlimactic -- the day when shareholders would easily bless the buyout of the computer maker he
founded 29 years ago.
Instead, the run-up to the vote on Dell’s $24.4 billion proposal has turned into a nail-biting game of
chicken that has left Dell’s side racing to lobby shareholders who consider the bid too low. Rather than
ending with a victory dance for Dell, today may yield a decision to postpone the vote deadline to give
him and private-equity firm Silver Lake Management LLC more time to convince investors of the merits
of the leveraged buyout -- or to simply increase the $13.65-per-share bid.
Page |6
Boosting the offer to $14 a share might suffice, said Angelo Zino, an analyst at Standard & Poor’s
Financial Services in New York.
“If you get the $14 offer from Michael Dell, it’s enough to quiet enough of the shareholders out there and
it’s enough to get the deal done,” he said.
On the eve of the vote, Chief Executive Officer Dell and Silver Lake weren’t budging, considering
$13.65 their best and final offer, according to people familiar with the duo.
That position leaves Dell’s shareholders in a quandary: If they reject the deal, the stock, now at $12.88,
could drop on concerns about Dell’s weakness in personal computers and its inability to compete with
bigger companies in the corporate technology market. In Germany today, Dell traded at the equivalent
of $12.83 at 10:00 a.m. in Frankfurt.
‘Shares Tank’
“You would see the shares tank, post a turn-down of $13.65,” said Zino. Michael Dell predicts the stock
will fall to about $7.90 a share, based on trailing earnings, if the LBO is voted down, according to a
person with direct knowledge of his thinking.
A more likely scenario is that the special committee of Dell’s board that is considering the bid postpones
the vote, possibly by adjourning the meeting right after it starts, a person with knowledge of the matter
has said.
A delay would prolong Dell’s struggle for control against billionaire investor Carl Icahn, who has pushed
for months for the founder to raise his bid and has offered his own proposal. Icahn’s rival offer of $14
would allow Dell shareholders to retain equity in a publicly traded portion of the company, plus a warrant
that could be exchanged for additional stock should Dell climb higher than $20.
Open Letter
Icahn and Southeastern Asset Management Inc., which holds a 3.98 percent Dell stake, urged the
board not to postpone the vote in an open letter to shareholders yesterday.
“If the special committee doesn’t like the $13.65 price, then as we see it, they should not have approved
the Michael Dell/Silver Lake transaction in the first place,” they said in the letter.
Phone and Internet voting is scheduled to close a minute before midnight New York time, and live
polling will close about 15 to 20 minutes after the meeting starts, said David Frink, a Dell spokesman.
For Michael Dell, a loss to Icahn would be particularly irksome, according to a person familiar with his
thinking. He understood when he started working on the idea of taking Dell private that another, higher
bidder could win out. That would have been an elegant way to exit the company that carries his name
by creating value for all stakeholders, the person said.
The last thing Michael Dell expected, the person said, was the prospect of losing the company to Icahn,
whom he considers a corporate raider.
Cash, Warrants
Icahn and Southeastern say their proposal values Dell at about $15.50 to $18 a share. The special
committee of the board calculated that if Icahn’s proposal gets consummated, each shareholder would
get $9.99 in cash and 0.18 warrants.
Michael Dell, meantime, says a plan like Icahn’s would add substantial debt, curb financial flexibility and
“hurt the company’s ability to weather an economic or business downturn,” the CEO said in a June 21
regulatory filing.
Page |7
Another person with direct knowledge of the situation said the special committee believes the buyout
group has room to raise the offer, and hasn’t been formally told by the buyers that their bid is best and
final. Adjourning the vote would give shareholders, who can recast their votes up until the last minute,
more time to change their minds, according to the person.
“Instead of executing the vote and maybe not getting it passed, Dell may need to postpone the vote until
they know it could get passed through,” said Jeff Fidacaro, an analyst at Monness Crespi Hardt & Co. in
New York.
Under Pressure
The stock will probably remain under pressure until the final decision, while staff may be tempted to
jump ship. The company announced the resignation of Kelly McGinnis, Dell’s global head of
communications, in an internal memo earlier this week.
Victory for Silver Lake and Dell would mean investors cash out while the company goes private and
Michael Dell embarks on a turnaround of the business he founded in a university dormitory in 1984.
CEO Dell wants to take the company out of public hands to gain more freedom to transform the PC
maker into a leaner, nimbler provider of data-center gear and corporate software.
A stream of disappointing earnings, dismal financial projections, endorsements from influential
shareholder-advisory firms, and a steady campaign by Dell’s board has persuaded many investors that
there are no other palatable options, said Sachin Shah, a merger-arbitrage strategist at Albert Fried &
Co.
“You can’t say, ‘I’m not voting for the deal,’ and then see the stock decline,” said Shah, whose New
York firm has clients who collectively own millions of Dell shares.
Dell’s Prospects
Icahn, meantime, is offering shareholders a chance to participate in the company’s recovery, asking
them to forgo the buyout’s quick money and put their faith in Dell’s prospects -- even though that may
mean tolerating the risk of a further decline in the shares.
To win the day, the buyout needs approval from a majority of holders, excluding Michael Dell, who owns
a 15.6 percent stake. Yet investors that hold at least 20 percent of the stock have voiced opposition to
the deal, saying it undervalues the company’s prospects, and some have thrown their weight behind
Icahn’s plan. Shareholders who abstain will be counted as voting against the deal.
‘Attractive Gain’
Some investors have already resigned themselves to the offer that was initially outlined in February.
“We would like to see this go through in order to avoid the likely sudden drop in share price and realize
an attractive gain,” Kyle Timmermann, a portfolio manager at Parkway Advisors LP in Abilene, Texas,
said in an e-mail. Parkway, which owns almost 12,000 Dell shares and $600,000 of the company’s
bonds, advises insurance companies on investments.
Other shareholders have remained steadfast in their view that Dell and Silver Lake undervalued the
company. Case in point: Yacktman Asset Management Co., based in Austin, Texas. According to its
latest filing, Yacktman owns 14.9 million Dell shares. While Yacktman would profit by taking the DellSilver Lake buyout, the firm is voting against the deal and supporting Icahn and Southeastern’s
alternative proposal.
“It’s hard to find things to invest in, and we’d rather own this than cash,” said Stephen Yacktman, cochief investment officer.
Page |8
Buybacks, Acquisitions
Dell has destroyed value by buying back shares at too high a price and overpaying for acquisitions,
including computer-services company Perot Systems Corp., data-storage company Compellent
Technologies Inc. and software maker SecureWorks Inc., Yacktman said.
BlackRock Inc., which has a 4.4 percent stake in the third-largest PC maker, voted against the buyout,
according to a person with knowledge of the matter.
Once the world’s top PC maker, Dell has become a patchwork of desktops and laptops, tablets,
enterprise software and data-center gear thanks to a slew of acquisitions since 2007. Sales and profit
are declining, and the company is projected to generate less net income this fiscal year -- $1.44 billion -than it did in 1999 on a third of the sales.
Dell shares, once an engine of wealth creation for investors and trading higher than $25 before the
2008 financial crisis, were at less than $9 last November. PC shipments, which account for more than
half of Dell’s sales, dropped 10.9 percent industrywide in the second quarter, their fifth straight period of
decline, market researcher Gartner Inc. said last week. Many Dell investors want to take the sure
money and avoid another swoon.
“Given the uncertain outlook, a buyout would be in the company’s best interest,” said Bill Kreher, an
analyst at Edward Jones & Co. who has a hold rating on the shares.
Investor Meetings
The company’s committee has met with major shareholders to seek backing for the buyout, and Michael
Dell has attended some meetings with key investors, said a person familiar with the matter. Dell’s proxy
advisers have also been calling small investors through their brokers and at home to ensure a favorable
turnout, another person said.
CEO Dell and Silver Lake’s bid picked up some momentum earlier this month when Institutional
Shareholder Services Inc., an influential shareholder-advisory firm, recommended investors support the
deal. Securing ISS’s endorsement was a key win for the buyout team. Glass Lewis & Co. also backed
the bid. Retail shareholders tend to follow the recommendation of the board, which in this case supports
the deal.
“From a public-company shareholder’s perspective, if your CEO is willing to buy your falling knife for the
privilege of catching it, there is probably a price at which you should let him,” ISS said.
businessweek.com
Hulu Still a Tease When Suitors Come Calling
July 18, 2013
It's hot and attractive, but the owners of Hulu cannot seem to find an appropriate suitor.
DirecTV reportedly offered more than $1 billion for the online video site. But Hulu's three owners -- 21st
Century Fox, Walt Disney Co.'s ABC and Comcast's NBCUniversal -- opted not to sell after holding a
bidding process for the second time in less than two years.
Industry analysts believe Hulu's owners felt like the company could get a better bid down the road. The
digital video segment of the industry is burgeoning, and they may want to hang onto Hulu to grow the
business -- at least until someone comes in with a more sizable offer.
"More and more content is going there and Hulu gives them a test bed that their own individual sites
don't," said David Hallerman, a principal analyst at eMarketer. "I wasn't totally surprised that it didn't sell.
It's more surprising that they've now tested the waters twice."
Page |9
After passing on the most recent buyout offers last week, Hulu owners said they would invest another
$750 million into the product.
This time around, Hulu owners flirted with what Fox President Chase Carey called "a number of
potential partners and buyers. Ultimately his company and Disney are now "fully aligned" in their vision
and goals for Hulu, Carey said in a statement released Friday. NBC became a silent partner when it
was purchased by Comcast in 2011.
But others in the industry are calling Carey's bluff.
"At the end of the day it's very clear there's no strong alignment on the path forward," said Steve Beck,
a business strategy expert and founder of cg42.
The network owners are largely competitors outside their ties to Hulu. They each may may think of Hulu
and how it fits into their respective businesses in a different way, Beck said.
With its 30 million monthly unique visitors, more than 4 million subscribers, and almost $700 million in
annual revenues, Hulu could provide a strong foothold in the video streaming field for a buyer. Hulu
dominates the free television show streaming sector, accounting for 43% of total streams in 2012,
according to the NPD Group. About 30% of online streams are from the major networks' sites, including
ABC, Fox, and NBC.
Right now it is primarily a portal for free, on-demand television shows. But, like Netflix, it has begun
producing its own content, albeit lesser known then the former company's House of Cards. Hulu's own
animated show created by Seth Meyers and Mike Shoemaker, The Awesomes, will be released August
1.
Significant question marks surrounding the digital television industry remain, but according to
Hallerman, "this is the way the world is moving."
The networks appear to want to hang tight until it gets there, when Hulu will become more enticing to
outside buyers.
money.cnn.com
Industry Reports
Report: Samsung Accounts for Nearly Half of All Android
Web Traffic in U.S.
July 17, 2013
Samsung is holding onto a whopping 47.2-percent share of all web traffic originating from Android
devices in North America.
A new study from mobile marketing company Chitika looked at Android-based web traffic in the U.S.
and Canada and found the Korean phone giant thoroughly trouncing all other Android OEMs. HTC was
the next closest with 9.7 percent, followed by Motorola with 9.5 percent, Amazon with 8.8 percent and
LG with 8.3 percent.
Somewhat surprisingly, Google only scored 2.5 percent of the web traffic originating from its own
operating system, a share equal to that of ZTE.
P a g e | 10
Samsung’s impressive lead stands to reason, at least in terms of Android smartphone sales worldwide.
As Strategy Analytics found, of the $5.3 billion in global profits from Android smartphone sales reported
during the first quarter of this year, Samsung pulled in $5.1 billion, or 95 percent.
Chitika based its findings on approximately 300 million ad impressions seen within its network between
June 17 and June 23. Chitika counts around 100,000 users in its network.
wirelessweek.com
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