Europe Preview: Deutsche Telekom Looms
When Rene Obermann took over Deutsche Telekom at the end of 2006 he was tasked with the firm's struggling domestic operations. His strategy has been to attract customers to high-margin broadband services as traditional fixed line customers have left in droves. In March, the message from Obermann and his team was that they were coming to grips with the division, and while sales would keep falling, they will eventually stabilize.
Shares where hit hard by this news, but with the strategy in place, you have to ask what more can be done. Obermann appears to have decided—or been told—that T-Mobile's expansion should be the new focus.
The highlight of tomorrow’s first-quarter earnings is likely to be T-Mobile’s operations in Germany, the US and UK. Earlier this week, reports began to indicate that Obermann is considering bidding for Sprint Nextel in a move that could catapult T-Mobile to the number one position in the US market.
Analysts are divided on the merits of the deal. While synergies in areas like marketing and sales would be significant, the problems Sprint has had since taking over Nextel have been considerable. As a result Deutsche Telekom would probably have to reverse that deal and then spend billions on integrating Sprint intto its network—something which could take several years to complete. Today’s Wi-Max deal with Clearwire further complicates the matter.
Two of Telekom's major shareholders are the German government and Blackstone. Both are thought to want Obermann to do a deal, but is Sprint the right one? While the recent fall in Sprint-Nextel’s share price makes it attractive, Deutsche’s main rivals have been eyeing or doing deals in faster-growing emerging markets. Vodafone’s Arun Sarin has focused on India, while France Telecom-owned Orange has made a big push into Eastern Europe and Northern Africa.
The flurry of M&A has pushed up prices for mobile operators in emerging markets, but MTN of South Africa appears to be in play. India’s Bharti Airtel is considering a $20 billion plus deal that would make it the largest mobile operator in Africa and give it a major presence in the Middle East. Maybe Obermann should focus on the developing world and forget about an American adventure.
Which way is the wind blowing?
Denmark’s Vestas reports on Thursday, and the wind turbine maker's progress over the last few months will be closely watched by investors and competitors like GE and Gamesa. Vestas management has decided to stop focusing on market share gains and instead put its energy into that favorite of investors everywhere: profitability.
This is in no small part due to new regulations in China that mean 70 percent of turbines installed in the country must be domestically built. China is the world’s fastest growing market, but the new rules clearly favor local operators.
Vestas' global market share has therefore been falling, but the same cannot be said of its share price, which has jumped by 177 percent in the last 2 years alone. Operating profits are expected to be 175 percent higher, but for shares to make further gains, investors will want to see a strong order backlog and robust new sales.
The weak dollar is likely to be a problem given 30 percent of Vestas’ sales come from the US and analysts at ING, Citigroup, Morgan Stanley and Goldman Sachs do not see much more upside for the shares. Those of you who have followed the stock in recent years will know that any disappointment on earnings is always punished by the market.
Louisa Bojesen will interview Ditlev Engel, the CEO of Vestas, on "Powerlunch" at 12:30 CET on Thursday.