Smartphones: when will Huawei be No.1?

Summary: We were surprised to hear Huawei’s objective of becoming the world’s No.1 Smartphone maker at last year’s Mobile World Congress, and somewhat dubious whether it would achieve that goal. However, at this year’s show Huawei demonstrated impressive progress, and we consider it is no longer a question of if, but when it will achieve its goal. In this analysis we explore industry scenarios and their consequences.(March 2013, Executive Briefiing Service).

Huawei Ascend P2 Smartphone

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Huawei’s position

A brief history of Huawei

Huawei is no minnow. Revenues in 2012 were US$35bn, profits were US$2.5bn, R&D spend was US$4.8bn, and it employs 125k people of whom 75k are in R&D and have relationships with nearly every mobile operator on the planet. 

In network equipment Huawei has grown from market entrant to market leadership in fifteen years. The first overseas order was for fixed line products to Hutchison Whampoa in Hong Kong in 1997. The first major overseas wireless order was to build the Dutch operator Telfort’s 3G network in 2003. The initial primary reason for many operators choosing Huawei network equipment was their low price. Many people have claimed the price was below cost. No-one would argue that the decade that followed resulted in a torrent of red ink on most network equipment vendors profit and loss accounts and market share gains by Huawei.

In consumer equipment, Huawei initially focussed upon the dongle market introducing its first datacard in 2007. Within three years, Huawei achieved market leadership and today has a market share in excess of 50% around the globe. At Mobile World Congress 2013 (MWC13), the Huawei stand had by far the most impressive range of dongles: USB, MiFi and embedded. Again, Huawei was the price leader and competitors claimed below-cost selling to establish market leadership. In 2011, Huawei settled a lawsuit with the previous EU market leader, Option, about anti-dumping practices. 

In 2012, Huawei devices had revenues of US$7.5m and sold over 120m units: including 50m dongles and 52m handsets, of which 32m were smartphones. Today, Huawei is the world’s number three Smartphone maker according to data released by IDC.

 Figure 1 – Smartphone Manufacturer – Units and Growth Q4 2011/12

Manufacturer

Units 4Q12

Units 4Q11

Growth

Samsung

63.7

36.2

76.0%

Apple

47.8

37.0

29.2%

Huawei

10.8

5.7

89.5%

Others

97.1

81.9

18.6%

 

219.4

160.8

36.4%

 

 

 

 

All Phone

 

 

 

Samsung

111.2

99

12.3%

Apple

47.8

37

29.2%

Huawei

15.8

13.9

13.7%

Others

307.7

323.5

-4.9%

 

482.5

473.4

1.9%

Source: IDC

Price – Huawei’s usual weapon of choice

Given Huawei’s history, it is highly likely that in trying to achieve its Smartphone goal the primary weapon will be price. This will have a profound effect in the Smartphone market in the medium term. Our view is that the Smartphone profit pool will be severely reduced for nearly all manufacturers, Apple being the exception, at least until Huawei achieves its goal.

In Q4 2012, Smartphone shipments were 45% of total phones compared to 34% in the same period in 2011. Our view is that this growth in penetration will continue over the coming years peaking at approximately 80% in 2015. This growth will mean a lot of new smartphone users which will be extremely price conscious especially compared to the early smartphone adopters.

Our view is that in this growing market of price conscious users across the globe, Huawei is in the prime position to capture a significant portion of the market. In an optimistic case where the existing Smartphone manufacturers allow Huawei a price advantage, we believe it will take Huawei three years (i.e. Q4 2016) to achieve leadership. In a pessimistic case, we believe it will take Huawei five years (i.e. Q4 2018). 

Promotion – how can money help solve this problem?

The Huawei brand is not well known outside of China and many of the manufacturers see this is a major weakness. Our view is slightly contrarian – if Huawei can achieve #3 position with a brand that has such limited customer awareness, imagine what they could achieve if the brand was well known? 

The key Huawei announcement was in our opinion a commitment to brand building in 2013. While it is impossible to build the brand strength of an Apple in the short term, it is possible to create brand awareness with a huge spend on promotion and advertising. We can envisage that all the world’s top branding agencies are current descending on Shenzchen offering to help Huawei with their branding campaigns across the globe. We believe that in three years time the Huawei brand will be as well know as the other Smartphone makers.

Product – Huawei ascendant

Figure 2 – Huawei Ascend P2 Flagship Smartphone

Huawei Ascend P2 Smartphone 

At MWC13, Huawei launched the Ascend P2 as its new flagship product for 2013. Our view is that the build quality is extremely good with a lovely Corning Gorilla Glass screen. Perhaps the quality is not quite as high as the new Sony Xperia, but at least comparable with all the other new models in the show. The differentiator that Huawei is promoting is that it is the fastest handset in the world supporting 4G speeds of up to 150Mbps. This is a bit unrealistic in our view as no networks are yet built to support those speeds. However, it highlights that Huawei do have excellence in radio engineering and will use its vast R&D army to create differentiation. Huawei have already a commitment from the Orange group to sell the Ascend P2. The Ascend P2 will retail at a highly competitive €400 before operator subisidies.

Flagship products are important to show capabilities, but will not create the huge volumes required to achieve leadership. Huawei had a full range of handsets on display across the whole range of price points.

To read the note in full, including the following additional sections detailing support for the analysis…
  • Place – money talks and distributors will listen
  • The Marketing Mix
  • Five Smartphone Market Scenarios
  • Conclusion

…and the following figures…

  • Figure 1 – Smartphone Manufacturer – Units and Growth Q4 2011/12
  • Figure 2 – Huawei Ascend P2 Flagship Smartphone
  • Figure 3 – Smartphone market scenarios

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 11 page report in PDF format hereNon-Members, please subscribe here. For this or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

RIM: R.I.P. or ‘Reports of my death are greatly exaggerated’?

Summary: RIM’s shares have plummeted in value over the last four months, prompting an eruption of finger-pointing in the media and speculation of its demise or acquisition. In this analysis we examine whether the doom-mongers are right and what RIM’s recovery strategy might be. (July 2011, Executive Briefing Service)

Apple iCloud logo in analysis of impact of iCloud/iOS on digital ecosystem

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Background – RIM’s share price disaster

RIM’s shares have plummeted in value over the last four months, prompting an eruption of finger-pointing in the media and speculation of its demise or acquisition. In this analysis we examine whether the doom-mongers are right and what RIM’s recovery strategy might be.

‘Reports of my death are greatly exaggerated’ – US writer Mark Twain, 1907, when he failed to return to New York City as scheduled and The New York Times speculated that he might have been “lost at sea.”

Figure 1 – RIM has obviously underperformed Apple, but incredibly it has also underperformed Nokia.

RIM, Apple, Nokia Share Prices July 2011 Telco 2.0

With its iconic Blackberry devices, RIM led the way in the mobile messaging era – first in corporate and then in consumer markets. But the transition to the mobile web has seen it surpassed by Apple and Google in consumer developed markets. In this respect RIM faces the same challenge as Nokia. And yet, despite facing the same challenge, RIM and Nokia have taken completely different strategic options for their future. When Nokia announced its partnership with Microsoft it pointedly talked about the creation of the third platform for the mobile web alongside Apple and Google – Nokia effectively discounted RIM from the game.

Previous Telco 2.0 analysis on RIM includes: RIM: how does the BlackBerry fit with Telco 2.0 strategies?; Mobile Software Platforms: Rapid Consolidation Forecast; and Nokia’s Strange Services Strategy – Lessons from Apple iPhone and RIM.

Current Position – on the surface, OK, but…

At first glance, RIM looks in a healthy position and its recent results show that both handset shipments (13.2m vs 11.2m) and revenues (US$4.9bn vs US$4.2bn) were up on the previous year. RIM is making reasonable profits (US$695m) and has a healthy cash position (US$2.9bn). But under the hood, life is not looking as rosy.

Profits: Under Pressure

RIM’s accounts show that its absolute profits are declining as growth in R&D and S&M costs are exceeding the slowing growth in revenues.

Figure 2 – RIM’s Profits are down against growth in R&D and S&M costs

RIM Profits, R&D Costs, Sales and Marketing Costs, July 2011 Telco 2.0

Of course, rising R&D and S&M costs may ultimately result in new revenues, although at present the effects of this spending are not yet evident in overall performance.

Revenues: Squeezed out of Key Markets

RIM’s revenues are dropping in key markets, particularly the USA, and its growth in revenues is coming from emerging markets.

Figure 3 – RIM’s Changing Market Revenues

Table of RIM Worldwide Sources of Revenue and changes, July 2011, Telco 2.0

Market Share: Declining

RIM’s share of the overall smartphone market is declining.

Figure 4 – RIM’s Declining Worldwide Market Share

Table of RIM, Apple, Nokia, Android Smartphone Market Share May 2011, Telco 2.0 (Gartner)

Core Product Advantages: Eroded

Core product advantages (e.g. Blackberry Messenger) are being eroded and surpassed as the competition (e.g. Apple iMessage) improves.

New Products: Late

New devices such as the updated Bold 9900 have missed planned release dates.

To read the rest of this report, including…

  • Outlook – a time of transition?
  • QNX & TAT – RIM’s saviours?
  • Playbook – A disappointing start
  • Coming: the Android / Emerging Market Crunch
  • Corporate Strength
  • Telco 2.0 Conclusions & Recommendations – Is there a recovery strategy?

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 14 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for £295, or for multi-user licenses and any other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

Companies, technologies and products referenced: 7digital, Adobe Flash, Amazon, Android, Apple, Blackberry, BlackberryOS 8, Bold 9900, Carphone Warehouse, Google, Huawei, iMessage, iPad, iPhone, Microsoft, Nokia, Phones4U, Playbook, QNX Software Systems, RIM, The Astonishing Tribe (TAT).

 

 

Full Article: Mobile Software Platforms – Rapid Consolidation is Forecast

Summary: New analysis suggests that only only three or four mobile handset software platforms will remain by 2012. 

AreteThis is a Guest Briefing from Arete Research, a Telco 2.0™ partner specialising in investment analysis.

The views in this article are not intended to constitute investment advice from Telco 2.0™ or STL Partners. We are reprinting Arete’s Analysis to give our customers some additional insight into how some Investors see the Telecoms Market.

Mobile Software Home Truths

Wireless Devices

famer%20and%20wife.jpg

Amidst all the swirl of excitement around mobile software, some dull realities are setting in.  As the barn gets crowded with ever more exotic breeds (in alphabetical order: Android, Apple OSX, Blackberry, LiMo, Maemo, Moblin, Symbian, WebOS, WindowsMobile), there is a growing risk of fragmentation and consumer confusion.  We see some unglamorous “home truths” about mobile software getting lost in the weeds.

 

Few, if any, vendors make money from mobile software.  Microsoft makes $160 of gross profit per PC while mobile software is moving royalty-free. The few pure plays (like Opera) rely on sales of services around their software.  Mobile software only gets leverage from related services (often a single one).  These must be tightly linked to devices, e.g., e-mail (Blackberry), e-books (Kindle), music (iTunes) or gaming (XBoxLive), with resulting communities controlled by their choice of software; few services work equally well on all devices (e.g., search, YouTube).

 

AppStores are not (yet) content stores. OEMs must link themselves with cloud services (like Motorola’s new BLUR platform) or offer their own (e.g., ITunes, Ovi, etc.).  Individual developers find it hard to make money through AppStores: if even one were making $10m in sales, it would be widely publicised.  Exclusive or “sponsored” applications like navigation or content-like games should fare much better.

 

We see room for only three to four platforms by 2012.  The pace of innovation, R&D cost, and need for customisation (for hardware, operators and languages) invites consolidation.  Supporting OEMs and reaching out to developers is costly and labour-intensive; only over time might HTML5 browsers supplant device-specific applications.  No platform is so productised as to simply hand over to licensees (be they OEMs or operators).

 

Every smartphone will support one (or more) AppStores.  We do not know how many services or what content AppStores 2.0 might offer, or how they will be made relevant to consumers.  The most popular applications should work on every smartphone, even as some devices (like INQ) are optimised for versions of Facebook, Amazon, Twitter, Skype and other popular digital brands and services. AppStores may help OEMs build relationships with users of those services, though both vendors and operators will try to control billing.

 

All phones are becoming smart.  So-called smartphones get attention as a growth segment in a declining handset market, but “dumbphones” (using proprietary software like Nokia’s S40, Samsung SHP/TouchWiz or LG’s S-Class) are getting more sophisticated.  The costs of the two are converging. Featurephones will soon also support AppStores and Internet services.

 

Table 1: Platform Penetration

 

’09E

’11E

 

Symb. v9.3+/S60

~110m

~240m

S60 goes mid-range

Apple OSX

~30m

~120m

Incl. iPod Touch

B’berry OS 4.5+

~40m

~80m

Doubling OS base

Android

<10m

~80m

From >10 OEMs

WinMo 6+

~10m

~50m

Transition to Win7

Palm WebOS

<5m

~15m

Limits w/o licensing

LiMo

<5m

~20m

Platform for LCHs

Source:  Arete Research estimates. 

 

Hard Graft

The costs for developing and maintaining complex software platforms are increasing.  There are no shortcuts to the sheer volume of work, especially in building on legacy code bases and supporting operator requirements, or developing language packs.  Every platform faces significant roadmap issues. Some handset OEMs are building adaptation layers to port a range of applications to their own branded UIs.  Just supporting multi-core chipsets for handling streaming or managing financial transactions needs additional processing power to deal with security and viruses.  Yet it requires software re-writes and poses power management challenges (i.e., tripling or quadrupling processing will drain batteries faster).

 

We long predicted video would become as ubiquitous as voice, i.e., with devices designed around handling video traffic.  There are a wide range of solutions to cope with streaming video, including in software (i.e., Flash or Silverlight) rather than via hardware optimisations. Apple patented technology around adaptive bit rate codecs to handle streaming in its forthcoming iPhones.  All platforms need to support over the air (OTA) updates, embrace graphics-rich applications, handle HD content, and comply with an array of USB drivers and accessories.

 

It is also not clear whether application downloads are a novelty or a mass market phenomenon. Discovery and recommendation engines need to be improved on most platforms, and marketing must focus on what applications offer. The gap between legacy platforms and an over-the-air customisable user experience is a wide one, and will not be resolved by AppStores, fresh UIs, or moves to go open source. Widget and webkit technologies could bring similar UXs across multiple devices.  Most developers will not need access to lower layers or optimise applications for specific hardware.  Over time, HTML5 browsers could supplant device-specific applications (e.g., GMail runs on an iPhone as a web application, as does WebOutlook on Android), but OEMs are unlikely to embrace this approach.  This also does nothing to extend billing or allow for collection of detailed customer analytics.

 

At the same time, operators’ selection criteria are moving from form factors to user experiences.  Operator UX teams now number in the 100s of staff, even if they fake a fragmented approach: Vodafone-subsidised devices currently support Android Market, Blackberry AppsWorld, OviStore and iPhone AppStore, and runs its own developer programme (Betavine). Few telcos develop native applications, but mostly use ones that run in Java, Webkit, Widgets, etc. Only a few (e.g., Verizon Wireless) offer customised UI.

 

While Apple and Google get the most attention (as pioneers of the AppStore concept, and for providing a shop-front for the open source community), Nokia and Microsoft have pivotal roles to play.  Both offer unprecedented scale (in handsets and computing software), even if both are fast followers.  We do not see Nokia’s commitment to Ovi or Symbian wavering. Though Microsoft’s successive versions of WindowsMobile failed to get traction beyond 10-15m units p.a., we expect a renewed push around Windows7 in 2H10. The MSFT/Yahoo search deal could be a blueprint for closer collaboration with Nokia. With its resources (a $9.5bn R&D budget) and assets (enterprise installed base, XBox, HotMail, and Bing), Microsoft could offer handset OEMs revenue share deals. LGE already committed to ship 50+ Windows models by 2012.

 

Figure 1: Product Differentiation?

arete%20mob%20soft%203%20nov%202009.jpgSource: Arete Research.

Content, Not Applications

An AppStore is not a content store, yet.  The next battle will be to add intelligence and filtering to AppStores, and tightly integrate content with platforms (as with iTunes, Kindle, Zune HD, or Comes With Music).  There are limits to how many applications consumers are likely to use, whereas there is a wide range of content to access via mobile devices.  To handle this, mobile devices also need integration with home CE/PC products. Samsung, for one, aims to provide “three screen” offerings spanning TVs, PCs, cameras, and handsets. There will be efforts by Sony, Apple, Samsung and others to make a single harmonised software platform that spans a wide range of video-capable devices.

 

Figure 2: Putting Software at the Centre of a CE “User Experience”

arete%20mob%20soft%202a.jpg

Source:  Arete Research.

 

With multi-radio (e.g., 3G, WiFi and Bluetooth) integration and voice recognition, mobile devices could become a control point to reach “virtualised” content.  This is a longer-term “cloud computing” angle to mobile software, handling access to and storage of personal content.  OEMs will need to offer tight integration with cloud services, or offer their own “stores of content.”

 

Apple and Google designed platforms with PCs in mind, and drew developers from the vastly larger desktop world.  They benefit from programming in AJAX, whereas Symbian uses a range of older object-oriented languages.  Yet in both handset and PC worlds, OEMs, not developers, create devices.  They are the gatekeepers for software and AppStores, managing the flow of any OTA updates that might alter the UX.  Adobe has provided a good model, with regular updates of its popular Flash and Acrobat software.  Yet user expectations of handset stability will get re-set if devices regularly need updates like PCs do.

Too Much Choice?

The number of companies vying to become the platform of choice is staggering, and itself a problem. Beyond the ones we discuss below, we can add Intel (with its Moblin effort), Palm’s WebOS (which remains device-specific) and the range of Linux variants (like the Nokia-sponsored Maemo, LiMO, and components developed under the OMTP).  The latter shows how limited group initiatives have been: OMTP involves VOD, TMOB, TI, TEF, AT&T, and others, but all of these compete for exclusivity with operator-subsidised devices that will never be OMTP-compliant.  None of the above options are yet mass market (i.e., likely to top 10m+ units in ’10).  Just to confuse matters further, there are other applications environments (e.g., BREW) as well as “component” vendors like Opera, Access, and Adobe.  We look at leading platforms below:

 

Apple’s OSX

Apple excelled at innovating around the UX and using animation to mask some of the iPhone’s early weaknesses (lack of multi-threading, slow image processing).  Apple’s marketing anticipated the market’s direction with its focus on applications, and Apple’s PA Semi unit will help it be first to market with multi-core processing (supporting streaming video).  Apple is still attracting developers with the clarity and simplicity of its SDK, and by testing and proving in each layer of stack via PC products.  We expect OSX to be extended to CE products, and also for Apple to bring AppStores to the PC.

Google’s Android

For a two-year-old platform, Android got ample OEM support, following up its G1 (a.k.a. the Android Developer Phone) with subsequent releases Cupcake/Android v1.1, with the Éclair release being v2.0. Android aims to be binary forward compatible, i.e., existing applications written for G1s will run on new devices without modifications.  Developers create Android Virtual Devices with the SDK to run applications for a range of devices. Development and emulator debug time is far shorter in Android compared with Symbian.

Despite OEM support, Android’s governance remains fuzzy.  Android is open-sourced licensed, but not an open source project: a small (~300 staff) team controls the developer ecosystem and Android Market distribution. It has not productised source code or offered post-sales software management tools, and has limited support for operator-compliant packs, libraries of hardware drivers, and language variants. Some developers say Android is slow to respond to change requests and to accept code modifications.  In exchange for access to Android Market, Google requires OEMs to bundle Google Apps and supply usage analytics from devices.  One key commercialisation partner, WindRiver, was bought by Intel, while another, Teleca, started an Android Feature Club to resolve common integration issues.  Android’s end-game is unclear: is it a hedge against Microsoft or Apple controlling end-devices?  A Trojan Horse for Google services?  Or will it become an independent company with license fees?  If operators don’t need devices “with Google,” then Android may fragment into many custom UIs.

 

Nokia’s Symbian

After a decade under a shifting set of parents, the rump of Symbian was bought by Nokia and made an open source project, including Nokia’s own S60 UI.  Symbian/S60 was initially developed for phone functions, and saw limited traction for downloads under cumbersome tree and branch menu structures. Many developers feel Nokia/Symbian offers too many choices (native Symbian code, J2ME, FlashLite, Web runtime and Python), each with limitations and compatibility issues. The S60 browser is based on webkit, but lacks HTML5 support.  Nokia’s decision to open source Symbian/S60 has stalled its development, as Symbian re-writes and tests third-party software in its 40m line code base.  It will be difficult to make major improvements to Symbian (i.e., to support multi-core processors) during this process.

 

When Nokia ships Direct UI in mid ’10, Symbian will effectively break its backwards compatibility.  Whether it also moves to a completely new release (v.10 from v.9.6) is still open. This may alienate developers that have to re-develop for a new platform and comply with Nokia’s new Direct UI (based on QT).  They also must resolve whether Symbian horizon is sufficient as a publishing tool, or if Nokia can get other OEMs to use OviStore, which still lags rivals on many fronts.  Nokia hopes Symbian will present a credible alternative to Android in mid-2010 when it is fully open source/EPL licensed, with Nokia assuring a large market.

 

Microsoft’s Windows

Windows Mobile 6.5 traced a long evolution from the Pocket PC OS, but still uses an older WinCE 5 kernel.  Microsoft recognised its failings by bringing in new management for Mobile, acquiring Danger (designers of the Sidekick device), and engaging LG as a mass market OEM alongside long-term supporter HTC.  We see 6.5 as simply a stopgap solution until Microsoft brings the innovation seen with its ZuneHD UI and leaner Win7 platforms to mobile.  Microsoft is also offering its software in a reference design called Pink, and may tweak its long-held license fee model with PC-like terms (rebates, discounts and marketing support). This may gain traction among Chinese OEMs, after Taiwanese and US OEMs failed to ramp WinMo to volume.  It is too early to rule out a now-dormant Microsoft, given its scale in computing and revival with Win7.

RIM’s Blackberry OS

In a world moving more “open,” RIM keeps its OS development in-house, stressing the need for security and compression. Yet RIM must evolve the BlackBerry’s UI and bring more developers to its AppsWorld platform, as well as open up its charging model beyond PayPal to embrace operator billing. BlackBerry’s application environment works on a J2ME framework with proprietary extensions, which adds fragmentation and compatibility issues. However, the security and bandwidth compression so valued by enterprises may limit performance for consumers, as applications traverse its NOCs via RIM’s proprietary browser.  RIM’s premium pricing still relies on its messaging franchise, which faces challenges from ActiveSync and efforts to bring push e-mail to mass market price levels. Rivals may not match Blackberry’s UX, but some segments may be less sensitive to RIM’s security and delivery than the price of handsets.  While RIM stresses incremental upgrades for its AppsWorld, we hear they are undertaking an extensive OS re-write to support new multi-core chipsets.

 

Down to Earth

This space gets too much attention for the revenue it directly generates.  Mobile software is a means to an end, and the end is selling devices and Internet services.  The cost of development will narrow the number of platforms by 2013, but not before the sheer number of options bewilder consumers who know about them and frustrate others wishing to get simple access to specific content. Given how rapidly key hardware costs are falling, and how sophisticated mid-range software platforms are becoming, all phones will become smartphones of some sort. Who wants to own a dumbphone?

 

AppStores will evolve to offer a range of content and services, with a major battle brewing over billing and data on consumer usage.  Every device will support some AppStores and work with a range of Internet brands and services.  Some content will be packaged and tightly linked to specific devices.  The Holy Grail in all this mobile software will be its extension to ranges of other CE products.  There is ample reason to scoff at the hype around mobile software — for its marginal economics and inevitable fragmentation — but no doubt as to its future role as a control point for more valuable content and Internet-based services and brands.

 

 

 

IMPORTANT DISCLOSURES

 

For important disclosure information regarding the companies in this report, please call +44 (0)207 959 1300, or send an email to michael.pizzi@arete.net.

 

This publication was produced by Arete Research Services LLP (“Arete”) and is distributed in the US by Arete Research, LLC (“Arete LLC”).

 

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Arete’s Recommendation Distribution.  As of 30 June 2009, research analysts at Arete have recommended 16.9% of issuers covered with Long (Buy) ratings, 21.1% with Short (Sell) ratings, with the remaining 62.0% (which are not included in Arete Best Ideas) deemed Neutral.  A list of all stocks in each coverage group can be found at www.arete.net.

 

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Arete Research Services LLP is authorized and regulated by the Financial Services Authority

 

US Distribution Disclosures.  Distribution in the United States is through Arete Research, LLC (“Arete LLC”), a wholly owned subsidiary of Arete, registered as a broker-dealer with the Financial Industry Regulatory Authority (FINRA). Arete LLC is registered for the purpose of distributing third-party research. It employs no analysts and conducts no equity research. Additionally, Arete LLC conducts no investment banking, market making, money management or proprietary trading, derives no compensation from these activities and will not engage in these activities or receive compensation for these activities in the future. Arete LLC accepts responsibility for the content of this report.

 

Section 28(e) Safe Harbor.  Arete LLC has entered into commission sharing agreements with a number of broker-dealers pursuant to which Arete LLC is involved in “effecting” trades on behalf of its clients by agreeing with the other broker-dealer that Arete LLC will monitor and respond to customer comments concerning the trading process, which is one of the four minimum functions listed by the Securities and Exchange Commission in its latest guidance on client commission practices under Section 28(e).  Arete LLC encourages its clients to contact Anthony W. Graziano, III (+1 617 357 4800 or anthony.graziano@arete.net) with any comments or concerns they may have concerning the trading process.

 

Arete Research LLC, 3 Post Office Square, 7th Floor, Boston, MA 02109, Tel: +1 617 357 4800