Megabuyte Blog

We’re looking at the future of SaaS – can you help please?

As regular readers of Megabuyte will know, we have spent quite a bit of time and effort over the last few years looking at how SaaS is developing as a trend. What are the key challenges and opportunities? What is the pace of change? How far will it go? Well, over the next few weeks, the Megabuyte research team will be working on a major update to our views on this important trend and there a number of ways in which our friends in the Megabuyte community can help, of which more in a minute.

First, I should set the scene on this research project. Back in 2010, we launched the first CEO SaaS Strategies exercise to get the views of leading software CEOs about the impact that SaaS was having on their businesses, both today and in the future. Readers can remind themselves of our research here. The results were fascinating; much of the focus back then was on how to manage the transition to SaaS from a technology and business model perspective, or the challenges of scaling an early-stage pure play SaaS business.

Fast forward three years and those that are still fretting about transitioning their business model or just getting a pure play business off the ground are seriously behind the curve. While some of the pain of the transition may still be in the numbers, forward looking software company CEOs are already thinking about the next phase of SaaS. They are asking the key question; now that my applications are web based, what extra can I do to grow revenues and enhance my competetive position?

We have long argued that, while SaaS itself is deflationary, it enables user organisations to do so much more with technology, that well positioned vendors should benefit substantially from the transition and generate margins equally as high as, or even higher than the leaders of the last wave. But these new revenue opportunities may not be in the form of software licences but could be from services or content or transaction fees or a mixture of all of them.

So the focus of our research for the 2013 CEO SaaS Strategies survey is to understand how software vendors, pure play SaaS vendors and established vendors alike, can take their offering to the next level. Call it SaaS 2.0 if you like. Now that we are on a certain path to web based applications, what are the new business opportunities and competetive or technology threats from SaaS 2.0?

As I mentioned above, there are three things that Megabuyte readers can do to help us out in this endeavour.

1. Fill out our CEO questionnaire. In the next few days, I will be sending our CEO SaaS Strategies questionnaire to the CEOs of over 100 UK headquartered software companies. If you are one of the people who receive it, I would very grateful if you could take five minutes to fill it out; the more people that complete it, the better the research will be.
2. Tell us about great SaaS companies. Of course, we wouldn’t be doing our job properly if we didn’t know a few already. But this is such a fast moving area that we need all the help we can get to maintain our early warning system of the best newcomers. By knowing companies at the leading edge of SaaS, we can better understand how key trends are developing. So, if you are involved with, or know of a great UK headquartered SaaS company, please just let me know by e-mail at [email protected] or phone on 0118 948 5851.
3. Come and discuss the results of our research. All Forum members are invited to attend the Megabuyte CEO SaaS Strategies Seminar on 26th November at the Hospital Club near Covent Garden. At the event, I will talk guests through the results of our research project, outlining key SaaS trends and strategies, and then take questions. Also, as part of the Megabuyte Roadshow, we will hear from some of the SaaS vendors that are living SaaS 2.0 and winning. And after all the serious stuff, we can enjoy a glass of fizz and a few canapés with other Forum members. Forum members can register for the event here.

So, please help us in any way that you can. As I have said in many presentations, I believe that we are living through a generational shift in the use of enterpise technology and the SaaS trend is one of the key elements of this generational shift. As such, I feel strongly that we have only just begun to see the impact that it will have on the vendor community. By giving us a better understanding of what’s going in your businesses, you will enable us to give a more informed opinion on the key trends that all software company CEOs will need to know for the years to come, in order to continue to make their businesses a success.

Thanks in advance for your help and we look forward to seeing you on 26^th November.

Will we ever again see proper technology companies listing on AIM?

I’m depressed. I have been watching the technology sector for nearly 20 years now and I can think of no time, other than the collective madness of the dotcom days, where the smaller end of the London stockmarket has been more dysfunctional. In my view, the latest crop of technology IPOs on AIM represent, at best, poorly understood and overvalued growth stocks and, at worst, the beginning of the end for the AIM market.

After several years where the IPO market in London was firmly shut I, like many others, was pleased to see the return of the technology IPO as a few companies made it onto AIM from 2011 onwards. However, my optimism has increasingly turned to dismay as I have witnessed a procession of tiny companies, many of which are of suspect quality, come onto the market only to have their share prices dramatically overhyped.

Wandisco, of course, is the poster child of this mini-bubble. Having been admitted to AIM on what I thought was already a pretty punchy multiple, the shares have preceded to skyrocket to the point where the company is valued at nearly £250m, equivalent to 44x current year revenues. Let’s be clear, this is a totally ridiculous valuation. I think everyone accepts that Wandisco can never justify this valuation organically so the City is betting on it being taken-out at a silly price. While some companies in the consumer technology segment may end up getting acquired for daft numbers because of their user numbers (Instagram for example), this just doesn’t happen in the enterprise software space. The likes of Cisco, Oracle and others may be desperate but they aren’t stupid. They have been known to pay 10x revenue or maybe even a bit more for what they perceive as strategic assets, but never anywhere near the 44x. I don’t really know anything about Hadoop, so maybe I’ve got it all wrong, but I suspect that the tiny bit I do know is a great deal more than most of the people who own the shares.

Wandisco on its own I can live with; ludicrously overvalued companies give me something to talk about when I meet my friends in the City for lunch. However, as I feared, where Wandisco has led, others have followed. Despite my criticism of Wandicso’s valuation, I have nothing particularly negative to say about the company; it is growing rapidly and seems to have a credible product in an interesting part of the market.

However, the same cannot be said for some of those that have followed. Blur Group (which apparently is reinventing commerce) looks a lot like nothing more than low quality facsimile of many other, more established players in the market. While it is undoubtedly growing quickly, gross margins are so low that, by my calculation, it will need to at least quadruple revenues from H1 run rate just to break even. And 1Spatial, which also published results this morning, is growing at 3%, making very little profit, consuming cash and yet still enjoys an EV/sales multiple of 2.5x and an EV/EBITDA of over 40x. And the list goes on. Outsourcery came to the market on 12x EV/sales claiming that it does something unique when many, including us, fail to see the uniqueness of the proposition that would justify anywhere near that valuation. Then there’s Malaysian enterprise software vendor Fusionex; revenues of less that £10m and a market cap of £140m. Anyone remember the last Malaysian company that listed on AIM. That’s right, data centre company CSF Group, whose shares are now trading at a fraction of the IPO price. There have also been other Asian software companies that have tried their luck on AIM and, to my knowledge, all have fallen by the wayside. I could go on.

So what is the reason for all of this hype and nonsense? For me, the fundamental issue remains the way in which fund manager performance is measured. Fund managers that invest in public companies are measured on the relative performance of their funds, usually against some kind of relevant index or basket of stocks. What this means is that, if they do not own stocks that are going up, then they will, by definition, underperform and this will directly impact their pay packets and, in extremis, their employment prospects. The obvious conclusion therefore is that fund managers need to own stocks that are going up which, in turn, makes them go up even more.

This scenario is the exact opposite of the micro-cap cul-de-sac conundrum that I have so often referred to in recent years. Fund managers funnel all of their cash into stocks that are perceived as strong performers at any one point in time and ignore those that are perceived to be in the micro-cap cul-de-sac. This leads us to the bizarre situation where very similar companies can have wildly differing valuations and some companies that those of us with a few years’ experience in the sector know to be held together with sticky tape, can be worth tens or even hundreds of millions.

It is easy to see the idiocy of this relative performance measurement if we think what it would be like if applied to the other main owners of smaller technology companies; private equity. Can you imagine how the underlying investors in a private equity fund would react if the investor relations manager for the PE firm came back after five years of a fund looking for fresh capital and said; ‘Our investment strategy was to invested in rubbish companies at high prices because that was what everyone else was doing. We ended up losing 25% of your money but don’t worry, this wasn’t as bad as most of the other firms so please can we have some more money to invest’. It’s clearly a ludicrous concept in a private equity context, so why does it wash with public companies. To be fair, I can see how this might be a good way of doing things for a fund manager investing in large cap stocks but, in the small cap arena, this relative performance measurement leads to lazy investment analysis and excessive volatility which ultimately puts off serious companies.

So, with no fundamental reason why these tiny companies have such huge valuations, sure as night follows day, many, indeed most of them will come crashing down. In fact, the cracks have already started to show. Keyword Studios was listed on AIM in July and has already issued a profit warning while, even worse, games company Zattikka, which floated just 18 months ago with a market cap of £22m, never managed to exceed its IPO price and called in the administrators in August.

But why does any of this really matter? If a few people get rich and greedy institutions lose a few quid, who really cares? Well, I do for one. A healthy stock market is a vital ingredient to a vibrant funding environment for technology companies of all ages and sizes. It has been long known that, if stockmarket flotation is not a viable option for raising capital, then all stages of the funding pyramid are affected.

In my early days as an analyst in the mid-90s, we welcomed companies like Fidessa (then called royalbue), Aveva (then called Cadcentre) and Capita to the market and all of which were below £100m value at IPO. My question is; where is the next Fidessa, Aveva or Capita going to come from? Even if we accept that there will always be a few puff stocks like Blur Group out there, the AIM market will not be perceived as a viable source of capital by ‘proper’ technology companies unless we start seeing some of them appear on the market.

And it’s not like there is a shortage of high quality candidates in the UK. As subscribers to our service will know, we track over 150 privately owned UK headquartered software, IT services and telecoms companies, the majority of which are of a size where a stock market flotation would be viable. There are newer, high growth companies such as Acturis, Thunderhead and Pulsant as well as more mature but still high quality businesses such as Sequel Solutions, Midland Software or Gamma Telecom.

My fear is that, with all of these over-hyped, generally low quality businesses coming to the market, the reputation of AIM as a serious place for companies to raise capital is already shot to bits. As such, rather than signalling the recovery of the AIM market, this latest crop of IPOs may well just be another step in the long slow decline in the small cap market that I have witnessed over the last 20 years. 

We’re on the move again … Physically and metaphorically!

As many of our subscribers may know, Megabuyte started life  in 2007 as a free blog born in my home office.

Fast forward  a couple of years to 2009/2010  and the business was starting to look like …well, a business.  First, my esteemed colleague Philip Carse took a leap of faith and came on board, enabling us to expand our coverage into the telecoms sector. At the same time, we decided to focus on properly covering private companies. The strategy bore fruit and with a growing subscriber base and the requirement for more pairs of hands,  the decision was made to move the business in our first proper office - a four desk serviced office in the centre of Reading.

Looking back, those few months of change acted as a catalyst for a period of rapid growth and development which has, over the last three years, enabled us to treble our coverage, our client base and our revenues, as well as completely re-engineer our web platform.

Now, with a new influx of analysts due in September, our research team will number eight people and it is time for another step change in the business.

Which brings me to the point of this post. Next week, we will be moving out of our serviced office into our first ‘proper’ office in a building called The Blade (it’s as close as Reading gets to an iconic building). The new office gives us room to pretty much double our headcount again over the next 3 years which will be a crucial enabler of our growth going forward.

There is much talk these days about how knowledge businesses can work remotely and offices are an unnecessary overhead, but I see things differently. Dare I say it, but I am in the Steve Jobs’ school of thinking; an office is a place where ideas are exchanged, not so much in meeting rooms but over coffee in the kitchen or by the proverbial water cooler (you can imagine how much planning has gone into the office kitchen!). As awesome as Skype is, it can never replace this spontaneous interaction.

There is also a school of thought which says that office costs should be as low as possible. I also disagree with this. I ask a great deal of the people who work at Megabuyte: the analysts get in at 7am (or earlier) and are often here 12 hours later.   In return, the least the business can do is to provide a great space for them to work. The additional cost of a premium office environment pales into insignificance compared to cost an under-motivated team. After all, when in life is the best thing also the cheapest thing?

To me, this change feels very much like that big (and scary) step in 2010 when we moved the business out of my house. We knew where we wanted to be and had to take a leap of faith to get there. Over the last three years, that leap has been rewarded and we have now reached a level approaching critical mass in the UK market.  Over the next three years, our aim is to build the same depth of coverage of continental European businesses in our existing sectors. And this, in turn, will be a pre-cursor to full international coverage over the medium term.

My ultimate vision for the company is for subscribers to use our research platform and events to identify, understand and engage with any technology company that is of interest to them on a global basis. We feel that we have already achieved this to a large degree for the UK market and our mission now is to replicate the model internationally. And our smart new office is just one piece of the jigsaw to help us on the way. Happy days.

PS: If you’re ever in Reading, why not swing by and say hello?

Where is the value in the UK business telecoms market?

Last week Megabuyte Forum hosted a dinner for Telecoms and Networks CEOs and private equity investors ahead of the publication of our latest, 77-page, Insight report into the sector (*). The focus was the business telecoms market, a contradictory market if ever there was one; in revenue decline but with improving profitability, and with a clear mismatch between risk and reward. On the whole, CEOs in this part of the market have more to smile about than their mobile network counterparts.

The dinner was attended by a broad cross section of telecoms companies and investors; from mass market consumer-focussed businesses, through business telecoms resellers, network operators, companies with substantial data centre and hosting activities alongside telecoms, through to new, small companies specialising in hosted voice and unified communications.

The companies operate in a UK business telecoms market that has been falling since 2008, with an estimated 3% decline last year taking it to 8% off its peak. Fixed voice has been in structural decline for many years whilst mobile, which accounts for nearly half the market, is now also in revenue decline. There are bright spots – notably hosting and Ethernet – with data just about growing, but there are also legacy data services such as ATM and Frame Relay. Perhaps the most telling statistic is that total business fixed and mobile voice minutes, as measured by Ofcom, started falling in 2012, with communications shifting towards IP-based services; unified comms, over the top messaging, email etc.

Despite declining revenues, most of the companies that we track, including BT, have grown their EBITDA margins by 3-5pp on average over the last three years, begging the question as to how. An obvious source for some highlighted at the dinner is MTR arbitrage; basically not passing on reduced mobile termination rate reductions in full or straight away in terms of lower retail prices for fixed to mobile calls. Note that this is in stark contrast to the mobile network operators, where falling MTRs (and EU roaming rates) are knocking 4-5% off revenues, which goes straight down to the bottom line.  Just like the companies they serve, telcos are also benefitting from cost efficiencies arising from new technology, whilst falls in telecoms hardware costs makes it a deflationary environment for costs as well as prices.

What is also apparent is the wide range of opportunity for business telecom providers, and the relatively low barriers to entry for new service providers, though with such a dynamic market comes risks from picking the wrong markets, services or technologies. The ten or so telcos represented at the dinner have noticeably different elements to their business models, whether service offerings, target customer segments, routes to market, network ownership or resale, and so on. Most are profitable and reasonably or very cash generative, and some are even achieving organic growth. There is plenty of scope for M&A which, in contrast say to software businesses, tends to generate immediate and significant cost synergies. The big irony in the market is that, whilst the asset rich networks take the risks in investing in new technologies and products, the resellers generally enjoy the best FCF returns. Depending on product mix, they enjoy decent EBITDA margins from having reasonably competitive wholesale supply, have very minimal capex requirements, and enjoy better operating cash conversion.

Before we get too carried away, few of the companies that we track over £100m revenues are generating organic growth, mainly because such companies tend to generate reasonable chunks of their revenue from fixed voice calls and lines and equipment supply, and it is hard to see where growth is going to come from. 4G may in time return mobile to growth, while investment in data centre and hosting services makes sense for some, but involves time and cost in acquiring new skills. At the end of the day, BT’s market share continues to be the obvious target, with just 5% of BT’s estimated business telecoms EBITDA equal to the combined EBITDA of Alternative Networks, Gamma, XLN and Unicom!

(*) The latest Megabuyte Insight report into the UK business telecoms market contains analysis of market trends, major players, business models, and corporate activity, as well as one page profiles on 43 leading UK headquartered players.  The report is available to purchase; please see here for details.

Maggie's telecoms legacy

Margaret Thatcher’s death marks the passing of the instigator of, in the 1980s and early 1990s, very far reaching and innovative changes to the UK telecoms market, that have not only been replicated worldwide but also laid the groundwork for the multitude of independent competitors to BT that we cover today at Megabuyte.com. We look back at that impressive legacy.

Whilst most of the Megabuyte team were in school shorts/skirts or hadn’t been born when Margaret Thatcher became Prime Minister in 1979, it falls to the oldest member of the team (who was doing his O levels then) to look back at her legacy.  O levels led to A levels and studying economics at University, at a time of very interesting and unprecedented economic change. Whilst we all take competitive markets for granted now, and companies grumble when they perceive them not working perfectly (e.g. Talk Talk moaning about BT’s fibre wholesale prices), the early 1980s were dominated by state owned companies in all of the ‘natural monopolies’, telecoms included, which were generally inefficient, offered poor service, and were constrained by strong trade unions.

The first major telecoms-related move of the new Conservative government after coming into power in 1979 was the separation of the General Post Office into separate post and telecoms businesses, followed by the privatisation of BT (then called British Telecom) in 1984. This was accompanied by the introduction of the Duopoly Policy, enabling Cable & Wireless to compete with BT in the UK in the provision of fixed line calls services, which required the establishment of interconnection prices. The sale of 51% of BT was certainly a radical move at the time (and was the world’s then largest share offering), and was accompanied by the removal of many constraints on BT’s actions. 

BT (like many of the other privatised UK industries) also became subject to a new form of RPI-X price cap regulation devised in the UK, administered by new independent regulators (Oftel in the case of telecoms), which still forms the basis for much price regulation across the globe. Whereas previously many natural monopolies had to set their prices to generate a certain rate of return, the new price cap regulation was designed both to provide incentives to efficiency as well as providing more certainty on pricing for competitors.

The mid-1980s also marked the granting of the first two mobile phone licences, to Vodafone and BT Cellnet (to become O2), which mandated independent service providers. Although no longer legally required, this model of independent service provision still exists and prospers to this day, to the benefit of retailers such as Carphone Warehouse and the many B2B telecoms resellers that we cover, such as Daisy and Alternative Networks.  Licences were also granted in the late 1980s for so-called Personal Communications Networks, operating at 1800MHz, which ultimately became Orange and T Mobile, and then EE. Again, the UK was one of the first, if not the first, country to licence additional mobile operators to the original incumbent(s).

The second major landmark in UK telecoms policy was the Duopoly Review of 1991, published shortly after Margaret Thatcher stepped down from being Prime Minister in 1990, which really laid the groundwork for the telecoms market that we know today. The review opened up the provision of telecoms networks and services to all and sundry, with the early adopters being the multitude of UK cable network franchises. Again, UK cable companies were the first in the world to be able to offer TV and phone services. Some potential competitors came and went, including the Ionica fixed wireless service.  However, it was this review that ultimately created today’s situation where we all have multiple choices for our home phone and broadband, and facilitated the creation of the hundreds of business telecoms providers that exist today in the UK, probably far more than any market outside of the US.

There were, of course, policy mistakes. One was pinning hopes on Cable & Wireless providing strong competition to BT, but Mercury failed to set the world alight, and C&W’s UK business (CWW) is now of course part of Vodafone. What a waste of a golden opportunity granted 30 years ago. A second mistake was the granting of so-called Telepoint (CT2) licences, also in the late 1980s; these were very low powered mobile services, requiring the user to be close to a base station to make or receive calls. Offering little more functionality than a phone box (remember them?), they unsurprisingly flopped (another one of Hutchison’s less glorious moments –with its Rabbit service - with Orange also being one of the failed service providers). Somewhat ironically, the Telepoint concept is little different to today being able to make a mobile VOIP call sat in a Starbucks!

A third mistake was the decision to licence as many as 140 or so town-based cable TV franchises in the early 1980s, with the resultant on-going consolidation to two players (Telewest and NTL) and then one (NTL/Virgin Media) significantly detracting from the serious business of running TV and phone services.

Whilst the onset of new mobile telecoms technology would have led to increased competition in any market, the changes driven through by Margaret Thatcher in terms of ownership, competition and regulation have created what is, despite the occasional competitor grumbling, one of the most competitive and open telecoms markets globally today. BT has one of the lowest market shares of any incumbent (but is still thriving), the market supports hundreds of smaller competitors, most of which are profitable and cash generative, whilst the internationally low (and declining) margins of the three main mobile network operators (see our recent UK mobile quarterly review) point to a more competitive mobile market than anywhere apart from perhaps India.  Some legacy!

Smartphone Apples and oranges (well Nokia and RIM)

Anyone reading the press over the last couple of days would think that Apple and Samsung are struggling whilst Nokia (and RIM) are resurgent in mobile devices. Things may be changing at the margin, but Apple generates 10x more revenue from 19% fewer devices than Nokia, and it still accounts for the majority of smartphone sales by the major US operators. We review latest operator and device manufacturer results; 2012 was a cracker for smartphone sales, but maybe we just now need to be moderating expectations going forward.

The last few days have seen a slew of results from some of the world’s leading mobile device manufacturers as well as two of the largest operators, Verizon and AT&T. We have also been getting a glimpse of RIM’s new BB10 operating system and devices, and very slick it looks too. So what do these developments tell us about the state of play in mobile? First a round-up of results.

Nokia reported yesterday, but its much better than expected Q4 2012 results had been trailed in an update two weeks ago. To cut a long story short (and Nokia’s releases are unremittingly long and turgid), Nokia sold more devices than the most pessimistic of expectations, whilst cost cuts meant that operating margins were +1.3% rather than the guidance of -2 to -10%. In total, it generated device revenues of €3.9bn from 86.3m devices, which included 15.9m smart devices (of which 9.3m are Asha devices which actually fall within Nokia’s Mobile Phone rather than Smartphone division). Whilst better than expected, revenues and volumes were still down 33% and 25% on the year before.

Samsung reported Q4 overnight, with very strong results; total revenues up 18.5% to 56 trillion WON ($52bn) and operating profit up 89% to $8bn.  Mobile revenues accounted for about half the total and were up 58% year on year to $25bn, whilst the slightly broader IT and Mobile division accounted for 62% of Group operating profit, up 113% (most of which was probably mobile). The Galaxy SIII and Note II devices were highlighted as key devices though no volumes figures were given. Whilst the results were strong, the company warned of increased smartphone and tablet competition as demand growth slows.

Apple, of course, got panned by the bears after just hitting profitability guidance, but also guiding lower than expected revenues for the current quarter. Let’s remind ourselves of the results; revenues up 18% to $54.5bn, but operating profits stable at $17.2bn, helped by $30.7bn of iPhone revenues on 47.8m units (up 29% and 28% respectively) and $10.7bn of iPad revenues on 22.9m units, up 22% and 48% respectively.  Basically double the profitability on the same overall revenues as Samsung.

RIM reported its most recent quarter just before Christmas, generating revenues of $2.7bn and a -1% operating margin on 7.2m devices shipped, with revenues and devices down 47% and 50% respectively.

So to put these numbers into context, Apple’s mobile device revenues of $41.4bn ($45.1bn if we include iTunes) was over 10x Nokia’s from 19% fewer units (70.7m versus 86.3m units). In Apple’s US heartland, Nokia sold just 0.7m units, albeit up 40%. Results from AT&T and Verizon highlight just how fundamental, in more ways than one, the iPhone is to operators, particularly in the US.

Verizon Wireless (in which Vodafone holds a 45% stake) reported revenues up 9.5% to $20bn, helped by a 6.6% increase in contract average revenues per account to $146.80 (yes, £92). The company added a net 2.2m connections to take the total to 98.2m, but sold 6.2m iPhones in the quarter, the cost of which (in terms of subsidy and revenue share) hit its EBITDA margin by 0.8pp to a still very healthy 41.4%. (Incidentally, 4G device penetration has reached 21.6m units, or 23.3% of contract devices, and the 4G network now carries 50% of Verizon’s mobile data traffic).

AT&T Wireless meanwhile grew mobile revenues 5.7% to $17.6bn, helped by average revenue per contract user (not account) up 1.9% to $65. AT&T added 1.1m new users, taking the total to 107m. It sold 10.2m smartphones in the quarter, of which 8.6m were iPhones. As with Verizon, EBITDA margins dipped, by 0.1pp to 29.1%.  AT&T was, of course, the original lead US network customer for the iPhone.

Overall, 2012 has seen a rapid growth in smartphone demand that has particularly aided Apple and Samsung, whilst Nokia and RIM (and HTC, ZTE etc) have suffered hugely from simply not having good smartphone devices. As we head into 2013, it is unsurprising that Apple and Samsung are being slightly muted in their outlook. Smartphone penetration has gone from 44% to 58% for Verizon in just one year (with a similar pattern for many other operators), and this mass conversion to smartphones clearly cannot be sustained for ever. Add in the fact that Nokia and RIM now have decent smartphone devices, and competition will undoubtedly increase at the margin. Nokia and RIM could see a significant turnaround in their fortunes because they are re-starting from such a low base, though Nokia’s reliance on more basic devices means it will be less exposed to smartphone driven upside than RIM.

In contrast, Apple and Samsung head into 2013 from positions of strength, with not only the market leading smartphone devices but also far stronger positions in tablets. They will retain their market leading positions, but we just need to readjust to perhaps less heady revenue and profitability growth going forward than we saw during 2012.