Brief TMT & Internet: DIGI 4Q Modestly Disappoints but Margins Are Improving and Outlook Is Benign. Upgrade to Neutral and more

In this briefing:

1. DIGI 4Q Modestly Disappoints but Margins Are Improving and Outlook Is Benign. Upgrade to Neutral
2. NVIDIA Pressure on AMD
3. Softbank: A Strong Tender Result
4. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile
5. Intel. Dogged By Headwinds In The Year Of The Pig

1. DIGI 4Q Modestly Disappoints but Margins Are Improving and Outlook Is Benign. Upgrade to Neutral

DIGI (DIGI MK) reported a slightly disappointing set of 4Q18 figures, carrying on from 3Q. Service revenue contracted by 2% after growing 0.1% in 3Q. However, the overall margin was slightly better driven by an improved equipment margin, with EBITDA up 2.2% YoY. Underlying (ex-equipment) margins dipped by 80bp. DIGI’s KPIs look in line, with subscribers down by 140k (in line with historic trends) and ARPUs flat sequentially. Data usage continues to grow (now almost 10GB/ month/sub) from already high levels. The dividend was slightly down at 4.8 sen,  suggesting dividends might have peaked. Guidance for 2019 is in line with our expectations: flat revenues and low single digit growth in EBITDA on a pre-IFRS basis. We have upgraded DIGI from Reduce to Neutral, the first time in 6 years we have not been Sellers! After five years of price declines and revenue erosion, Malaysian telcos look much closer to global norms now. With DIGI down 30% from its high in early 2015,  and with earnings having stabilized we are now comfortable with a neutral rating. 

2. NVIDIA Pressure on AMD

Nvidia Corp (NVDA US) is moving back toward macro chart support levels. If these levels hold there is scope for a basing cycle to unfold that would lead to a positive turn for NVDA. During this process, Advanced Micro Devices (AMD US) will feel additional pressure to test macro support outlined in AMD Buy Support and Tactics . We reiterate macro support levels in this webcast.

NVDA’s MACD reveals a clear cycle – The break below floor support will now act as a ceiling and does telegraph a new and lower trading range.

Our SOX sell call last summer still has a few final touches to complete the major bear cycle with a key low due near May 2019. We are near, but not yet at the cycle trough.

A webcast runs through key pivot points.

3. Softbank: A Strong Tender Result

Softbank Group (9984 JP) released the results of its 750mn USD tender for its Euro and USD commercial paper, which could also portend further support for the equity ahead of results next Wednesday. More details below.

4. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile

With its nationwide fiber optic network infrastructure, NTT continues to dominate the fixed line broadband market in Japan with 68% market share. In this Insight we explore the fixed line broadband market in Japan today and how it is evolving, especially with the increasing dominance of “collaboration” offerings that bundle fiber with mobile services.

Mobile services are getting a lot of attention today, especially in the run up to 5G launches over the coming 12 months, but without fiber backhaul, 5G would be a nonstarter. In this Insight we investigate what 5G will bring and what is needed to support it as well as the telcos’ latest plans. 

NTT is not just an incumbent telecom operator, it’s also a key player for future technologies and provides the physical infrastructure and architecture for many of the industries new services.With all the talk about 5G it is sometimes easy to forget that fixed line networks are still necessary. With NTT’s strong fiber-based network and its collaborations with NTT Docomo and many other partners in mobile and data, we believe NTT is well positioned to be a key and winning player in the evolving telecom and technology space. 

5. Intel. Dogged By Headwinds In The Year Of The Pig

Intel‘s fourth quarter 2018 results last week missed on earnings to the tune of $360 million. That, combined with a tepid outlook for 2019 YoY growth of just 1% spooked investors, sending the stock down over 5% on three times the normal trading volume the following day. 

Lagging process technology leadership, ever increasing competition from ARM, AMD and NVIDIA, lower modem sales as iPhone unit shipments decline, falling NAND prices, data center spending significantly reduced as the hyperscalers digest and optimise their record-breaking build-out will all weigh heavily on the company in the coming quarters. 

After a record breaking 2018 which saw the company’s annual revenue grow 13% to edge north of the $70 billion mark for the first time ever, Intel now faces a growing array of headwinds which will dog the company for the Year of the Pig.