As the economy slackens and competition revs up, the handset market may set the stage for a battle between big names and their smaller counterparts.
Some analysts are doffing their hats to the bigger players-Nokia Corp., Motorola Inc. and Ericsson Inc.-dwarfing the chances of second- and third-tier manufacturers to secure comfortable market share. But others contend product quality may teach the big boys some humility.
In an update on mobile-phone markets in the deteriorating economic landscape of the first quarter, investment analyst firm Wit SoundView commented that the big three have a better chance of maintaining a stronghold on the market.
The report, which raised some doubt about the abilities of Motorola Inc. and Ericsson to compete, said the shrinking market reduces the competitive edge of second- and third-tier manufacturers like Alcatel Alsthom, Siemens AG, Phillips and Samsung.
These firms, noted the reported, “have made proclamations questioning the growth of the market and we believe they have all cut their internal targets correspondingly.”
Wit SoundView applauded Nokia’s strengths as it continues to record revenue gains with bright sales prospects. It hinges Ericsson’s and Motorola’s immediate success on two trends: “GPRS phones bringing higher ASPs and reduced competition from the tier two and three as consolidation and lower expectations cause those companies to recoil.”
This view of the market is a symptom of what some analysts see on the horizon should the today’s economic conditions decline further or hold up, suggesting that the small may be swallowed by the large in consolidations.
French vendor Alcatel’s Chairman Serge Tchuruk said his company might take part in consolidations in the near future. Rumors are seething that it may take over Sagem, another French phone maker, which has not been able to carve up a buoyant market for itself in spite of the 13 million phones it churned out last year.
The incoming president of Dutch electronics group Phillips has hinted that it may withdraw from the market.
“Companies such as Alcatel and Phillips don’t have the economies of scale or the culture or the brand name to compete in the long run,” said Per Lindberg, an analyst with Dresden Kleinwort Wasserstein, to the Financial Times of London.
Comparative advantage, say analysts, could force some Asian companies with an edge in third-generation technology to bid for some European companies, especially since most of them will follow the path of wideband CDMA, the anticipated dominant technology on both aisles. The combination also could gain from factory capacity, local brand names and distribution outlets.
In Europe, some observers think those smaller manufacturers like Sony, Sharp, Kyocera and Panasonic may be contemplating combinations, although the prospects of complete takeovers are slim.
But Jane Zweig, chief executive officer of the Shosteck Group, believes these analysts oversimplify the dominance of the big three, observing that Nokia, Motorola and Ericsson have enough weakness to make the market open for the forays of the so-called smaller players.
Zweig noted that Motorola and Ericsson have laid off thousands of workers, and this means a loss in the resources they could have contributed to the companies. Huge sums of money not spent on research and development will have a ripple effect on the big companies, she said.
Zweig observed that most of the downsized workers are those almost due for retirement and they understand the dynamics of technology migration more than the surviving staff.
“Those people have historical memory and they have lived through the pain,” she remarked.
She also said Nokia has a problem with its CDMA phones, which are plagued with glitches, and Ericsson has had to recall some of its GPRS phones.
Drawing on a study by The Shosteck Group called “Wireless Internet devices: from phones to the future,” Zweig said the so-called second- and third-tier manufacturers may outplay the big names in innovation.
The reason, she said, may be because the future may be less about phones and more about electronic advantages.
She noted that the end user may see the phone as a gateway product to other formats like Bluetooth or cable.
“It’s not about phones,” she said. “It’s about the end-user experience. Integrated devices will not always provide the answers.”
She highlighted the strengths of Sony, Panasonic and Samsung in the electronics area, noting that they are all recognized brand names, which could benefit them in phone sales.
