The Finns and Swedes are battling for world dominance in the wireless market. Nokia is no longer content being #1 in handsets. Now it wants network dominance as well. Ericsson's infrastructure dominance is secure for now, but the handset division still can't find the hole in its pocket. A deal with Sony may help.
 |
|
|||||||
|
||||||||
|
||||||||
By
The world's #1 handset maker Nokia (NYSE: NOK) reported Q1 pro forma earnings of (in Euro) €0.22, a 16% increase over last year's €0.19. Revenues were up a strong 22% and the company claims to have increased its market share in both handsets and network infrastructure. For the quarter, Nokia Networks revenue grew by 35%, while Nokia Mobile Phones posted a 20% increase in revenue. The Finnish telecom giant reaffirmed earnings guidance the last time we heard from management, but did lower revenue growth to 20% from the 25% to 30% range. Prior to that, in January, Nokia lowered earnings guidance after announcing a strong fourth quarter. Back then, revenue projections for 2001 were 25% to 35%. The Q1 press release stated anticipated revenue growth of 20% for Q2 and full-year 2001, but management did up the ante for 2002, returning to the 25% to 35% forecast. Each quarter the world waits for Nokia's worldwide handset sales projections, and they did not change from the last statement of 450 to 500 million units for 2001. (Some 1 billion handsets are expected to be in use worldwide by sometime next calendar year.) Nokia, the largest global handset maker by far with a third of the market, has set an aggressive global market share target of 40% (for more on market share, check out Fool UK's morning coverage). In a recent conference call, the CFO hinted that 50% was "not impossible." Perhaps most troubling for competitor Ericsson (Nasdaq: ERICY), the world leader in mobile telecommunications infrastructure, is this statement from the earnings announcement: "Nokia believes it has the opportunity not only to extend its leadership in mobile handsets but also to gain the leading position in the 3G mobile network infrastructure market." (3G stands for "third-generation" wireless technology, which will allow for higher-speed digital transmissions.) The phone equipment market is expected to grow 8% to 10%, and Nokia Networks is going after more than its fair share. Jorma Ollila, Nokia's man in charge, said Nokia "has the extraordinary opportunity to achieve twice the market share reached in the second generation." Look out below. Nokia is expecting the financial spoils of next generation 3G build-out to "become more apparent" to Nokia Networks in 2002 and during the second half of 2002 for Nokia Mobile Phones. Meanwhile, Nokia management also reaffirmed its 40% global handset market share goal and promised to "maintain a prudent approach to [vendor] financing." On the flip side, Ericsson announced more layoffs -- up to 11,000, or 10% of its international workforce -- euphemistically calling the cuts an "efficiency program." These are on top of the 3,300 cuts announced last month. The Swedish equipment maker didn't even manage to eke out a positive operating margin, losing over 4.7 billion kronor (SEK) for the quarter. One Swedish kronor is worth about $0.12, so that amounts to a loss of $564 million. Including a onetime gain of SEK 5.5 billion from sales of Juniper Networks (Nasdaq: JNPR) shares, EPS was SEK 0.06. Interestingly, Ericsson included this gain in operating income rather than extraordinary other income. Guys, if you can make half a billion dollars a quarter in investment gains, you're in the wrong business. The release states an operating margin objective of 10%, "but not in 2001." Last month, Ericsson warned of a net loss and flat year-over-year revenues after hanging on to the promise of 15% revenue growth as long as possible. Now the guidance is 5% to 15% growth in the mobile network infrastructure market. Ericsson also provided its own handset prediction of 430 to 480 million units in 2001. The rumor that Sony (NYSE: SNE) and Ericsson were in talks about combining their struggling handset divisions was confirmed by an Ericsson spokesperson, according to The Wall Street Journal, but nothing was mentioned in the press release today. Both companies have struggled with profits in their handset divisions. Last quarter, Ericsson lost SEK 5.7 billion in its mobile phones division. And in January, Ericsson handed off the manufacturing of its handsets to electronic manufacturing services (EMS) company Flextronics (Nasdaq: FLEX), though it maintains that for strategic reasons it will not sell its handset division. Sony's struggles, meanwhile, forced it out of the U.S. handset market in 1999. Nokia seems to be the only handset maker standing on terra firma, with #2 Motorola (NYSE: MOT) announcing 7,000 job cuts in its handset division. It's a good thing Ericsson derives the majority -- over three quarters -- of its revenues from mobile systems infrastructure. Systems orders grew 8% from last year's levels despite a dismal market. Although this does not compare favorably to Nokia's 35% bump in infrastructure sales, it's only fair to mention that Nokia is working from a smaller base. In dollar terms, Nokia sold $1.8 billion in network systems last quarter while Ericsson sold $5.3 billion. The Swedes and Finns have got a heck of snowball fight on their hands over dominance in the wireless world, and so far the Finnish aim has been more accurate. Todd Lebor does not own shares of any of the companies mentioned above nor has he ever been to Sweden or Finland. Road trip, anyone? Todd's holdings can be found online, along with the Fool's complete disclosure policy.
RSS Headlines
Fool UK
