China Mobile Net Misses Estimates as Competition Cuts Margin
China Mobile Ltd. (941), the world’s biggest phone carrier by users, reported third-quarter profit that missed analysts’ estimates amid increased costs to compete for subscribers who use smartphones to download games and music.
Net income climbed 3.7 percent from a year earlier to 30.7 billion yuan ($4.8 billion), according to figures derived from nine-month earnings reported to the Hong Kong Stock Exchange today. Profit was expected at 32.1 billion yuan, based on the average of two estimates compiled by Bloomberg.
China Mobile faces “intense competition” from rival carriers, Chairman Wang Jianzhou said in today’s earnings release. The Beijing-based company is further challenged by rising penetration rates for mobile phones in the world’s largest mobile-phone market by subscribers that leaves an ever smaller pool from which to draw new users, he said.
“I believe growth will be very difficult for China Mobile to accelerate in the future,” Jim Tang, an analyst at Shenyin Wanguo Securities Co. in Shanghai, said in an interview after the earnings announcement. “A slowdown in revenue and net profit is more likely to happen.”
Quarterly sales rose 8.9 percent to 133.8 billion yuan, according to figures derived from data the company released. The company was projected to post sales of 133 billion yuan, according to the average of six estimates compiled by Bloomberg.
China Mobile fell 1.25 percent to close at HK$75.25 in Hong Kong trading today before the earnings announcement. The stock has dropped 2.5 percent this year, while the benchmark Hang Seng Index has dropped 22 percent.
The company didn’t provide details on higher costs in the third quarter to attract new users in the statement. In the first nine months of the year, net profit margin fell to 24 percent, from 25 percent in the year-ago period.
“The other two carriers are ramping up their competition so they are facing the strongest competition they have ever seen for China Mobile,” Sandy Shen, an analyst at research firm Gartner Inc., said in an interview with Bloomberg Television today. “They are trying to compete with the other two carriers to try and get as many subscribers as possible. At the same time, that means you have to invest in subsidy programs.”
To attract customers to the company’s third-generation network and maintain its lead over China Unicom (Hong Kong) Ltd., Wang has introduced smartphones costing less than 1,000 yuan, such as ZTE Corp. (000063)’s U232 and Lenovo Group Ltd. (992)’s TD36T.
China Mobile also added Research In Motion Ltd. (RIM)’s BlackBerry Bold 9788 last month to win over higher spending customers in its battle for 3G users with Unicom, the nation’s only carrier offering Apple Inc. (AAPL)’s iPhone with a service contract.
China Unicom has so far failed to use the iPhone to catch up to China Mobile in 3G users. While China Mobile’s 3G network is incompatible with the Apple handset, it has attracted 9.5 million iPhone users to its second-generation network, most of whom access the Internet over the company’s Wi-Fi infrastructure, Wang said Oct. 13.
China Mobile had 633.5 million mobile-phone subscribers at the end of September. The total includes 43.2 million 3G users, the company said today.
The figures exceed China Unicom’s 189 million mobile customers and the 30.2 million users of its 3G service at the end of September, according to data the smaller carrier released yesterday.
China Unicom and China Telecom Corp., the nation’s third- largest carrier, are scheduled to report earnings next week.
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