BMO Capital Markets analysts Tim Long, Ari Klein and Alex Spektor provide highlights from day two of the Mobile World Congress (MWC) 2014.

MWC

We attended Day 2 of the Mobile World Congress (MWC) trade show in Barcelona. Below are highlights from the meetings we participated in and other announcements.

F5 Networks at MWC 2014

We met with Karl Triebes, EVP of product development and CTO and Cooper Werner, SVP of finance.

Management was positive on the good/better/best pricing model that was launched to the sales force in November. The “best” option is being chosen often, which should result in very strong software sales.

Cisco ACE replacements are contributing to revenue growth. Management believes replacing the $1-$1.5 billion of installed equipment will be a tailwind for 5+ years.

Diameter signaling is an exciting new opportunity. Service Providers are more interested in the technology, particularly as they ramp LTE. We believe F5 Networks, Inc. (NASDAQ:FFIV)’s win rate has improved since Tekelec got acquired.

We make no changes, but remain positive on F5 Networks, Inc. (NASDAQ:FFIV). We see the product refresh, Cisco replacements, and higher software and security sales leading to accelerating growth.

Ciena at MWC 2014

We met with Tom Mock, SVP corporate communications.

The Ericsson deal improves Ciena Corporation (NYSE:CIEN)’s global reach given the wireless vendor’s global footprint and market share of 35%-40%. We estimate that Ericsson generated almost $500 million in optical revenues last year, so pulling Ciena through should help both companies.

There are a lot of moving parts in the North American market this year. A second source at one major carrier as well as a slow move to 100G is being offset by metro rollouts from some smaller Service Providers. Management does expect the US to grow this year but we assume much of Ciena Corporation (NYSE:CIEN)’s growth will come from international markets with roughly 5% growth in the US.

CIEN is shipping to several large wins in Brazil, Asia, and India. Vodafone represents a big opportunity in Europe, particularly if other carriers react to the spending increase.

The competitive landscape is unchanged. Management believes that in some markets, Huawei Technology Co Ltd (SHE:002502)’s market share has gotten to levels that may make the Service Providers uncomfortable. This is an opportunity for CIEN to take share.

Samsung at MWC 2014

We attended the Samsung Galaxy S5 launch event on Monday evening. The phone is expected to be out in 150 markets in April.

Although there is no doubt that Galaxy S5 is an improvement over last year’s version, we are concerned that the changes and new features are not sufficiently impressive to yield meaningful sales growth for this new generation.

Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) quoted a 200 million unit installed base for Galaxy S (1-4), compared with the 100 million in cumulative sales it claimed about a year earlier. This implies there is a high 8-figure base ready for upgrade in 2014, and we believe the spec/feature jump from S3 to S5 is potentially attractive. However, Samsung may have trouble winning over new customers beyond upgraders, now that easier post-Symbian wins have all taken place.

We once again expect multiple versions of the phone, based both on Exynos and QCOM Snapdragon.

Ericsson at MWC 2014

Ericsson (ADR) (NASDAQ:ERIC) hosted an investor discussion on IPR, with Kasim Alfalahi, chief intellectual property officer.

Ericsson (ADR) (NASDAQ:ERIC) currently has just over 100 licensees for its IPR, with ongoing negotiations with approximately 40 firms, including renewals of existing business. Based on indications from management, we believe ERIC currently licenses to about two-thirds (in volume terms) of the global smartphone market, with most of the gap coming from low-end Chinese vendors.

We believe Ericsson (ADR) (NASDAQ:ERIC) mostly collects royalties on device revenues, rather than flat fees, and as a result the continued growth in handset revenues should help to keep growing the IPR business, even excluding the signing of new licensees.

ERIC management does not believe that the outcome of the Chinese government’s probe into QCOM will affect its own royalty rates. ERIC’s licensees in China currently include legacy players Huawei and ZTE, as well as newcomers like Xiaomi.

BlackBerry at MWC 2014

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) had several more announcements today at MWC.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) announced BES12, which is due in late 2014. We believe the system to be an evolution of the multi-platform device management approach of BES10, but we remain concerned about the balancing act between free licenses to increase the user base and the need to better monetize the offering.

As expected, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) announced an enterprise messaging system for regulated users, called eBBM. The system is due in the summer. We are pleased to see that BBRY will finally be able to monetize BBM, as it plans to charge a monthly per-user fee.

The company launched its first phone from the Foxconn partnership. The 5″ all-touch Z3 is aimed at the low-end Indonesian market, due in April. We believe it will be critical for the BBRY to shift volume over to the ODM side quickly, in order to improve the negative device margins. We believe the company has lost a lot of share to Android in Indonesia, so the new phone is needed.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) also announced the Q20 QWERTY phone, due in 2H14. We expect enterprise users to be the primary target, as most high-end consumers no longer rely on physical keyboards.