Most of the world’s top mobile-phone makers celebrated major fourth-quarter victories, with record numbers of shipments and revenues boosted by the holiday season, but those in the industry expect the real action is still yet to come.
“There haven’t been a lot of surprises,” said Ben Wood, handset analyst for research and consulting firm Gartner Inc.
The industry’s quarterly results “reflected the end of a good year,” said John Jackson, a wireless and mobile technology analyst for research and consulting firm Yankee Group.
Although most vendors including Nokia Corp., Samsung Electronics Co. Ltd., Sony Ericsson Mobile Communications L.P. and Siemens AG reported increased handset sales in a season of high demand, the real test for the industry’s top players will come in the coming months, analysts said.
Sales during the fourth quarter were so high that some handset vendors-most notably Motorola Inc.-couldn’t score enough phone components to meet customer and carrier demand. Only the largest vendors like Nokia were able to leverage their component buying power and push enough phones into sales channels during the quarter. However, as phone component providers ramp up production over the coming months, the playing field will even out-thus opening up the market for competition over phone design, software and price.
“From several manufacturers we heard that they could have sold more,” Wood said. “I certainly think 2004 will be a challenging year.”
The company with the most to lose this year will be Nokia, whose lead is more than double that of its closest competitor. Phone providers across the world-as well as some carriers looking to break Nokia’s brand dominance-will work to cut into the company’s control over the market. Indeed, the sheer size of the mobile-phone market in 2004, projected to increase to more than half a billion units, is serving to draw even more competitors to an already competitive business. Although some had predicted consolidation within the mobile-phone industry, the draw of such massive opportunity could serve to simply make a cutthroat market even more so.
Despite such threats, market leader Nokia took a brief opportunity to enjoy its holiday earnings.
“Nokia had a strong performance,” Gartner’s Wood said. “They continue to be the leaders in this marketplace.”
In Nokia’s mobile-phone business, which accounts for 80 percent of the company’s earnings, Nokia reported net sales increasing 4 percent year on year to about $8.9 billion. The company said sales were driven in part by color screens and camera phones, welcome news to an industry working to increase replacement sales with advanced devices. Nokia said it sold a record 55.3 million phones in the quarter, up 20 percent year on year and giving Nokia what it estimates to be a 38-percent market share.
Further, Nokia said it expects to continue to score gains in the coming quarter, predicting net sales will increase in the range of 3 to 7 percent.
The world’s No. 2 provider, Motorola, offered more clouded results, with sales in its phone division down 3 percent to $3.3 billion compared with the year-ago quarter. The company managed sales of 22.4 million phones, with operating earnings of $127 million compared with operating earnings of $294 million in the year-ago quarter.
“The decline in revenues was due to delays in introducing several new products,” said Mike Zafirovski, Motorola’s president and chief operating officer. “However, these products have been shipping in volume since mid-December. The reception to these products has been positive from consumers, as well as from the wireless service providers which have placed significant orders for them.”
Motorola predicted its phone shipments will be up by as much as 25 percent in the first quarter compared with the same quarter last year on sales of its new phones.
“They made it clear they were coming back strong,” Wood said. Motorola “needs to be extremely strong in 2004.”
Samsung, the world’s No. 3 provider, reported solid earnings and sales for the holiday quarter, with revenues in its phone division increasing by 5.4 percent quarter on quarter. The company said robust demand for high-end handsets with camera and camcorder capabilities drove revenue in its phone division to a new quarterly record of $3.3 billion. Samsung shipped 16 million phones in the quarter and scored an operating margin of 18.5 percent, just below industry-leader Nokia.
In 2004, Samsung said it expects to sell 65 million phones, scoring a worldwide market share of 13 percent. Samsung said it will expand sales of its megapixel camera phones, smart phones and MP3-capable phones.
Wood said Samsung is seeing more competition in the high-end phone market as Motorola, Nokia and others expand their handset portfolios. Wood said Samsung will need to make more lower-cost phones in order to meet its goals.
The world’s No. 4 phone provider Siemens scored a major fourth-quarter coup, with its handset division reporting an $81 million net profit on sales of $1.7 billion compared with $66 million on revenues of $1.6 billion in the same quarter a year ago. The phone maker sold 15.2 million handsets in the quarter, but said most of its business was due to lower-end phones. Wood said Siemens needs to work on maintaining profitability and a stable market share.
Finally, Sony Ericsson reported its second consecutive profitable quarter, reversing a trend of losses that started when Sony Corp. and L.M. Ericsson first founded the joint venture in 2001. Sony Ericsson scored about $76.7 million in net income in its third quarter, and in the fourth quarter the company reported $53.2 million in net income. The company’s fourth-quarter net income includes about $11 million in restructuring charges brought on by its withdrawal from the North American CDMA business. Sony Ericsson sold 8 million phones in the quarter.
Sony Ericsson “seems to be more settled as a business,” Wood said.
LG Electronics Co. Ltd. is set to report earnings this week.
