As the thermometer of the phone sales market, Nokia Corp.’s situation indicates the market is cooling.
Yet, market research group Wit SoundView believes while this may be true of the market in general, the Finnish company may have only pulled a muscle. Its strides bound forward still.
The leading phone maker warned a couple of weeks ago that it was slashing its forecast for the second quarter of the year. It said it expected its year-on-year sales growth to dip below 10 percent instead of the 20 percent earlier estimated.
“In light of Nokia’s commentary-which we read to be an indictment of the state of end-user demand-we have lowered our growth assumptions for the industry,” said the research firm.
The company has consequently cut its global handset sell-in forecast for 2001 to 388 million from 455 million and handset demand forecast to 420 million from 486 million. The firm says the “total number of mobile subscribers will not reach 1 billion subscribers until the very end of 2002, and should only reach 860 million this year.”
Wit SoundView echoed the factors of product transition and Western European penetration as culprits for the downslides in sales, but it still blames European operators obsessed with balance sheets, noting they are frustrating demand by reducing handset subsidies.
“This is negatively affecting operators’ prospects for growth, but because they are bringing on fewer subscribers, their marketing costs are lower and their spending on infrastructure can decrease,” said the research firm.
Although Nokia is going to find it difficult to build a viable momentum in light of a dearth of catalysts to spur growth, the research firm maintains that the Finnish vendor remains the top company, affirming a strong buy rating and a $29 price target.
Nokia Chairman and Chief Executive Officer Jorma Ollila chalked it up to the economy. “The general economic slowdown in the United States has recently shown signs of extending to other regions and to the wireless communications industry as a whole.”
Wit SoundView says the market is not saturated yet, observing that Asia’s penetration is just 8 percent.
On Motorola Inc., the research firm says the phone maker has shown sequential improvement in the September quarter because of its GPRS leadership, although the picture leading up to that quarter will be bleak.
Emphatically, the research firm says that hopes of an upbeat market will be fiction until data takes off.
“This means that subsidies on voice-based handsets, promoting growth, will be lowered and that capital expenditure on mobile infrastructure to handle traffic increases will be limited,” it said.
