Reports from the world’s top mobile-phone and network infrastructure providers painted a muddled portrait of the industry, with a few bright spots mixed in with a fair helping of bad news.
In the phone market, four of the world’s top suppliers reported relatively sluggish earnings. Investors saw Nokia Corp. gaining market share over Motorola Inc. and Samsung Electronics Co. Ltd., while underdog Sony Ericsson Mobile Communications managed to finally offer a positive quarter.
“It’s been a tougher profit environment,” said Christopher Ambrosio, director of wireless device strategies for research firm Strategy Analytics.
“I think at the end of the day, it’s still a healthy quarter,” said Bryan Prohm, principal analyst in mobile phones for research firm Gartner Dataquest. “The second quarter historically is one where you see a lot of products being moved.”
Prohm said mobile-phone players are gearing up for the holiday season, still months away, and are looking to sell their excess inventory before introducing new products. The result in previous years has led to relatively unimpressive second-quarter results.
In the lead in the second quarter was Nokia, which boasted increasing market share to an impressive 39 percent. The company bragged of its gains in the U.S. mobile-phone market as well as increasing CDMA sales.
However, Nokia’s stock was down almost 18 percent following its earnings report. The company’s operating profit was down 32 percent from the same quarter last year to $958 million, and its net sales were up just 1 percent to about $7.8 billion. Further, Nokia said it expects mobile-phone volumes to grow by 10 percent, which the company said represented faster-than-market growth, but it said third-quarter sales will be flat or even slightly down. Nokia blamed the depressing outlook mainly on the depreciation of the U.S. dollar.
News from Motorola seemed even more dim. The company’s sales dropped to $6.16 billion in the quarter from $6.87 billion a year ago. In its mobile-phone sector, Motorola suffered a sales plunge of 13 percent to $2.3 billion with handset shipments falling 5 percent to 15.8 million. The company reported a net profit of $19 million.
Analysts from every corner expressed significant concern over Motorola’s handset business. The company heavily relies on the Asia-Pacific region-especially China-and has been hard hit by the SARS situation and excess inventory levels. Motorola’s Mike Zafirovski said the company plans to sell 16 new phone models in the second half of the year, many of which will include color screens and integrated cameras. However, Strategy Analytics’ Ambrosio questioned whether the company would score with its high-end devices.
“Where’s the volume in those devices?” Ambrosio asked. “I think Motorola has some real issues it need to address.”
For its part, Samsung reported slumping profits and an 8-percent decline in handset revenues. The company said it sold 12 million mobile phones in the second quarter, down from initial expectations of more than 13 million. However, the company said it plans to release 20 new mobile phones in the second half of this year in order to bolster sales, according to reports.
Finally, Sony Ericsson offered some bright news on the handset front with significantly improved financials, but it said it will not be able to make a profit for the full year as it once promised. The company shipped a healthy 6.7 million phones in the quarter, and its net sales were about $1.2 billion. The company reported a net loss of about $98 million, which includes its CDMA restructuring costs. The numbers are an improvement from the $116 million loss the company reported in the previous quarter.
“It’s encouraging to see Sony Ericsson do what they did,” Ambrosio said.
The final two top mobile-phone players, Siemens and LG Electronics, will report results this week.
But, Ambrosio said, the underlying issue behind the quarterly handset numbers deals with companies’ margins and mobile-phone price tags. The real demand for high-end, data-capable mobile phones is unclear at best, and cheaper, low-end models likely will continue to dominate for the next year or two. Thus, Ambrosio said, mobile-phone players need to focus on making money from low-end handsets to survive.
“The world should not expect ASPs (average selling prices) to increase,” Ambrosio said. “Users aren’t going to shift en masse to higher-priced devices.”
Just as the mobile-phone industry looked murky at best, so too did the network infrastructure business.
Lucent Technologies Inc. further dampened Wall Street zeal with its announcement that it would not see black until next year, citing poor demand for its products. The company said it expects revenues for its fiscal third quarter to fall by approximately 18 percent from $2.4 billion in the second quarter.
Nokia’s outlook for its networks division was much the same as previous years, with the company expecting “no sign of improvement.” Nokia said it expects a third quarter, year-on-year sales decline of 15 to 20 percent in its infrastructure business.
In Motorola’s infrastructure division, called its global telecom solutions segment, sales dropped 17 percent to $1 billion and orders dropped 15 percent to $930 million.
On a brighter note, Infrastructure provider L.M. Ericsson offered evidence its cost-savings efforts are working against the down network equipment market, news that seemed to impress investors and send the company’s stock up almost 15 percent. Ericsson’s net sales were down 28 percent from the same quarter last year to $3.4 billion, but the company’s net income remained the same at $329 million compared with the same quarter last year.
