The ominous shadow of an economic slowdown is creeping into the wireless industry as vendors reel under unfulfilled earnings forecast, poor sales performance, downgrades and investor anxiety, capping off the gold-rush mentality of the past half-decade which took shareholders, analysts and Wall Street executives on a fairy-tale ride.
In the past quarter, Lucent Technologies Inc. recanted its forecasts, Motorola Inc.’s shares dipped, Nokia Corp. reported a slide in handset demand and L.M. Ericsson of Sweden predicted a loss that bewildered analysts.
Last week, Motorola met fourth-quarter estimates when it reported a net income decline of 58 percent, triggering expectations of gloomy results from the other big vendors like Nokia and Ericsson later this month.
Nokia provided what some analysts saw as the foretaste of its fourth-quarter results when it estimated that 405 million mobile phones were sold last year, fewer than the 420 million analysts expected.
While some analysts and executives attribute this unsavory picture to a general economic thaw, others chalk it up to a frenzy of exaggerations fueled by a misreading of the good times.
“The grandiose predictions originally made were too great to be believed, and it is not surprising that the numbers have had to be lowered in order to meet the actual realities of the market,” said Larry Swasey, senior vice president of communications research for Allied Business Intelligence Inc.
A drop in cell-phone demand and a decline in the semi-conductor business played a crucial role in the poor showings, according to analysts.
Motorola lamented a 20-percent decline in order growth for cell phones and a 19-percent drop in the semiconductor business.
The company pledged to cut costs, confirming that the problem lies with managerial miscues as much as with the general economy. Motorola’s present situation surprised many investors who rode its wave of optimism in early 2000 when it embarked on a series of restructuring. But Motorola was a victim of its own ambition with expensive phones whose prices it had to cut for a loss. It also made phones on as many as 10 platforms, which took its toll in staff and marketing.
In a recent report, Lehman Brothers said Ericsson “has to demonstrate that it is capable of monitoring the abysmal loss-making handset business that represents the most important hurdle for the group at the moment.”
The downbeat sales picture is also attributed to overestimated handset demand in Europe where buyers are perceived to use multiple units for different purposes. But the market is believed to be saturating and the market may gravitate to upgrades rather than replacements.
While meltdown may be the keyword in m-commerce, some industry analysts think the bad news is often overstated.
“Despite some of the recent poor news concerning the slowdown in wireless, the reality is that wireless is still growing at a rapid pace,” said Allied Business Intelligence.
It said subscribers will continue to climb as well as the deployment of infrastructure supporting narrowband and broadband wireless applications.
With the mobile penetration rate of 40 percent in Europe, 30 percent in North America and 4 percent in Asia-Pacific, market research group Radicati Group predicts that the number of users of wireless communications will more than double in 2004.
It projects revenue growth from $497 million in 2000 to $5.9 billion in 2004.
Allied Business Intelligence anticipates a handset replacement rate of more than 60 percent between 2002 and 2006.
In spite of Nokia’s handset sales estimates, analysts and investors expect it to meet its earnings forecast. Other vendors seem to be on the upswing. German telecom maker Siemens, French-based Alcatel and Korea-based Samsung are improving their market shares, taking advantage of the weaknesses of both Motorola and Ericsson.
