Although the market for W-CDMA mobile phones is still in its infancy, now is the time for most players to get a foot in the door or risk being left out in the cold.
According to Strategy Analytics, the market for W-CDMA phones will total 16.5 million units this year. That number will jump to 36 million next year and will continue to increase in the years after. As carriers spend billions of dollars to upgrade their networks to third-generation technology, the demand for devices that can help earn back that investment will be significant.
Nokia Corp. is the world’s No. 1 mobile-phone manufacturer with 30 percent of a market expected to reach around 670 million units this year alone. Motorola Inc. and Samsung Electronics Co. Ltd. are battling for second place, while Siemens, LG Electronics Co. Ltd. and Sony Ericsson Mobile Communications L.P. account for much of the rest of the world’s phone shipments.
However, none of these companies is the world’s leading W-CDMA phone vendor-which comes as somewhat of a surprise because Nokia and others have long glorified the virtues of 3G technology.
Japanese handset vendor NEC Corp. is the world’s No. 1 supplier of W-CDMA phones, according to Strategy Analytics. The company shipped 1.3 million 3G phones in the second quarter and 1.6 million in the third. Next up on the 3G list is LG, followed by Motorola, Panasonic and finally Nokia.
“NEC is probably the one Japanese vendor that has leveraged its future on W-CDMA,” said Chris Ambrosio, director of the wireless device strategies service for Strategy Analytics. “No one else has bet the farm like NEC has on UMTS.”
Ambrosio said a large portion of NEC’s 3G sales is due to its close relationship with NTT DoCoMo Inc., the first carrier in the world to deploy a major 3G network. DoCoMo spent around $750 million developing 3G phones, which is a main reason for NEC’s early leg up. In addition, the vast majority of Panasonic’s 3G sales are due to its relationship with DoCoMo.
NEC “benefited from the investment of NTT DoCoMo to get where they are,” Ambrosio said. However, such an early lead may not necessarily translate into success. “We think they’re spending more money than they’re making on W-CDMA.”
Indeed, NEC recently announced it would replace its own 3G chips with those from Qualcomm Inc. and Ericsson Mobile Platforms, a move that could help cut its development costs. NEC also has a joint development effort for 3G devices with Panasonic.
Although NEC might currently be losing money on 3G phones, the company’s strategy may pay off in the future. As carriers around the world first turn on their 3G networks, they will likely seek out handset vendors that have experience with the technology. NEC already supplies around a dozen different 3G handset models for the likes of DoCoMo, Hutchison Whampoa Ltd. and Vodafone Group plc. NEC’s early moves give it a foot in the door that most other vendors don’t have.
“They have to get in early,” Ambrosio said. “NEC is positioned for good growth metrics.”
Smaller vendors like Sanyo, Fujitsu, Sharp and others have to get their 3G offerings up and running quickly or they may risk missing operators’ initial 3G handset orders, Ambrosio said. If such vendors are left out of the first 3G run, they will be much less likely to win a carrier deal when the likes of Nokia and Motorola bring full 3G arsenals to bear.
“That’s the only chance that some of these smaller vendors have to be a significant player,” Ambrosio said. “Those smaller vendors that have been waiting for the W-CDMA market to take off … they need to be in the market next year.”
Interestingly, one of the world’s bigger vendors already has staked out a W-CDMA playground. LG is being “very aggressive” in the 3G market, Ambrosio said, with low prices on some of its devices. More importantly, LG has the scale to quickly ramp up 3G phone production if demand suddenly spikes. With an early lead and the motivation to gain market share, Ambrosio said LG could become a major 3G player.
As for Nokia and Motorola, the companies have enough clout and strength in the industry to bide their time until the 3G market becomes worth their while. The companies’ vast manufacturing and shipment prowess means that they can quickly push themselves into the market by force.
“As the volume opportunity emerges, this will become increasingly more important,” Ambrosio said. “I don’t think it (3G) is a tactical concern for them yet.”
Ambrosio said Motorola and Nokia’s primary objectives now should be to maintain their second- and 2.5-generation leadership roles for the short term so they don’t lose their positions in the overall phone market.
Interestingly, Ambrosio said Nokia has somewhat of a hidden strategy that has nothing to do with W-CDMA phones. He said the company has been quietly building EDGE-capable devices, which could gain it significant carrier support as operators deploy EDGE services in areas surrounding their W-CDMA networks.
“EDGE is going to be quietly deployed,” Ambrosio said. “Nokia will probably be the first … to meet that need.”
