Telecom-Equipment Companies Offer Optimistic Outlook for 2002
By EDWARD HARRIS
Staff Reporter of THE WALL STREET JOURNAL
STOCKHOLM -- There may be a faint light at the end of the telecom tunnel.
When they issued their dismal second-quarter earnings recently, three of the world's largest telecommunications-equipment companies tantalized markets by declaring that their sector wasn't dead, only sleeping. Nokia Corp. of Finland, Nortel Networks Inc. of Canada and Motorola Corp. of the U.S. all predicted that demand for their products, likely flat this year compared with last, would pick up during 2002.
The tea leaves aren't so clear for Sweden's Telefon AB L.M. Ericsson, the world's fourth-biggest maker of mobile-phone handsets and the No. 1 producer of mobile network systems. Ericsson, reporting a second-quarter loss Friday of 14.2 billion Swedish kronor ($1.34 billion), said it's impossible to say when -- or whether -- there will be a turnaround, considering that the global economy is hard to predict and the telecom industry is wallowing in debt (see article). "Anyone talking about business a year from now is superhuman," said Ericsson Chief Executive Kurt Hellstroem in an interview.
But some analysts who follow the industry are siding with Ericsson's rivals. They say a technology transition now afoot should drive demand for telecom products toward the end of this year and into next. The logic behind the upbeat projections goes like this:
First, demand for mobile-phone handsets should spike during the Christmas buying season as handsets that can handle a new technology called GPRS hit stores. GPRS handsets will communicate over existing mobile networks but will be able to offer some of the advanced services promised by what is supposed to be the savior of the industry: third-generation, or 3G, technology. The GPRS devices should, for example, allow for faster downloads from the Internet than today's handsets can achieve, and should deliver a constant Web connection.
Second, telecom-service providers that have curtailed spending on existing mobile networks will by late this year or early 2002 be forced to buy equipment like base stations and transmission masts to bolster capacity. The providers will have to invest soon in more 2G infrastructure, the argument goes, because the second-generation networks European telecom operators transmit over today are reaching capacity. If GPRS services are a hit, 2G systems could become further jammed. Customers could before long be frustrated by busy-signals, dropped signals and generally shoddy service.
"We'll see some good news by the end of the year, if everything works out," said Urban Ekelund, an analyst with Stockholm-based Redeye AB.
Billions of dollars have been bet on it all working out. Many service providers are shouldering huge debt loads after spending heavily on government licenses for 3G, the industry's holy grail. They see people around the world using mobile phones not just to talk or transmit brief text messages but also to send e-mails and photographs, to surf the Web, even to teleconference.
But some aren't willing to take the leap of faith. Vodafone Group PLC, the world's largest mobile-service provider, last week said it was slowing construction of its 3G networks as it wasn't convinced a sufficient number of handsets would be on the market next year at this time. Handset makers have vowed there will be an ample supply of 3G devices. Hutchison Whampoa Ltd. said on Saturday it plans to roll out third-generation mobile telecom networks in Europe in mid-2002, according to a Reuters report, despite Vodafone's warning.
Ericsson's Mr. Hellstroem believes as much as anyone in the future of the mobile Internet. For Ericsson, however, the present is the concern, as the company is in the midst of a massive restructuring in which it will lay off nearly a fifth of its work force. Its second-quarter loss compares with a profit of 10.2 billion kronor in the same quarter in 2000.
The company took a 15 billion kronor charge in the quarter to pay for the restructuring, the benefits of which aren't expected until the end of the year, it said. Quarterly revenue was 62.8 billion kronor, a 3% drop from a year earlier.
Write to Edward Harris at ed.harris@wsj.com |
