Telecommunications: The Hand-Off: A Wireless ["lowband"] Weekly
(part 1)
CREDIT SUISSE FIRST BOSTON CORPORATION
Equity Research
Americas
U.S./Technology/Wireless Telecommunications Equipment
Marc A. Cabi
The -Hand off: A Wireless Weekly
Motorola reports better than expected earnings of $0.44
beating consensus estimate of $0.41. Strong sales in
Handsets and Semiconductors.
DSP Communications reports earnings of $0.22 for Q2:99.
Beats consensus of $0.21 but not good enough for the street.
Stock slips.
Preview of Nokia Q2 Earnings: Expected to demonstrate
another record quarter. Results reported July 22, 1999.
Preview of Ericsson Q2 Earnings: Second Quarter Results
Likely to Echo First Quarter Decline. Expect Attention to
Focus on Management Change and Handset Launches. Results
reported July 23, 1999.
Next Week - Other Q2:99 Earnings: Qualcomm and Phone.com
WIRELESS TELECOM NEWS 7/9/99 - 7/15/99
Friday, July 9: 1) Andrew Corporation introduced HELIAX®
VXL5-50 extra flexible 7/8-inch coaxial cable for wireless
applications. The new cable has a minimum bend radius of just
3.5-inches and is suitable for continuous cable runs from the
base station cabinet to the antenna. When used as the main feeder
line, VXL5-50 cable requires fewer connectors (lowering insertion
loss) and no jumpers (minimizing installation time). HELIAX
VXL5-50 cable is 15% lighter than standard 7/8-inch cable
products. The cable's reduced weight and tighter bending radius
minimizes installation time and lowers site costs. 2) Teledesic
announced it has signed a contract with Lockheed Martin to use
two heavy-lift launch vehicles, the Proton M and the Atlas V, to
launch a significant portion of Teledesic's satellite
constellation. In addition, Teledesic has completed and signed
its system agreement with Motorola, the company's prime
contractor, after more than a year of close collaboration and
detailed design work. Motorola is responsible for leading the
engineering and construction of the Teledesic Network. Motorola
attained notoriety earlier in the year due to work stoppage on
the project resulting from MOT's displeasure of not having the
signed contract in place. The contract is contingent upon
Teledesic's approval that the system meets its requirements
following a final technical review period, which is expected to
be completed within three months. 3) CellStar Corporation
announced that it has been chosen to provide a variety of
distribution and value-added services to COCELCO S.A., the third
largest cellular service provider in Colombia with a total of
300,000 users. Terms were not disclosed.
Monday, July 12: 1) Boeing Co. launched a Delta 2 rocket
Saturday, putting up four satellites for the Globalstar worldwide
mobile telephone network in orbit. The four satellites now bring
Globalstar's total up to 28. With another launch scheduled for
later this month, that would bring the total up to 32 which is
the minimum required to initiate services in Q3 of this year.
Launches will be ongoing as the company moves towards its goal of
48 operational satellites and 8 in-orbit spares. Globalstar is
the primary competitor to Iridium. 2) Ericsson announced it has
extended an agreement to supply TDMA infrastructure equipment to
Triton PCS in markets SouthEast United States. The contract, an
$95 million agreement, builds on a five-year, $200 million
contract signed in 1998 for Ericsson to provide and install base
stations and mobile switching centers. Ericsson will also supply
software, services and handsets throughout Triton PCS' markets.
Tuesday, July 13: 1) Nortel Networks announced that it has won
a major contract with NTT to supply next generation access
solutions based on the copmanies Service Adaptive (SAA) Line Card
product. NTT's introduction of the SAA Line Cards into its
network will help meet the demand for high speed Internet access
in Japan. 2) Natural MicroSystems announced that Ericsson has
selected Natural MicroSystems' products and services for the
first integrated wireless network which enables carriers to
combine dispatch and group communications within their standard
GSM infrastructure. GSM carriers will be able to offer these
wireless capabilities with little incremental investment to
customers such as taxicab, courier, maintenance and public
service companies. In addition, this new network will mark one of
the first implementations of the Windows NT operating system in a
carrier-class environment. 3) RF Micro Devices has introduced
an extremely small low-noise driver amplifier for 900MHz
CDMA/AMPS applications. Manufactured using a high-performance
silicon process technology (Si Bi-CMOS), the RF2352 is ideal for
use as a TDMA/CDMA/FM driver amplifier, a low-noise transmit
driver amplifier, or general-purpose amplification in the
824MHz-925MHz frequency range. The component is offered in an
extremely small (4mm x 4mm) leadless plastic MLP-16 package.
Available for immediate shipment, the RF2352 is priced at $1.05
per unit in order quantities exceeding 10,000. 4) Alpha
Industries announced that it has received the first production
orders for its GaAs RF integrated circuits and discrete
components in a next- generation Motorola dual-mode wireless
handset that will operate on both iDEN and GSM networks, allowing
it to be used in more than 130 countries around the world. This
versatile new handset, which is expected to reach the market
later this year, will feature Internet access capability in a
package that weighs only 6 ounces. 5) Digitel Corporation has
acquired Nortel Information Networks, a business unit of
telecommunications giant Nortel Networks. The acquisition will
help boost the company from about $14 million in revenue to
nearly $25 million in the coming year. Nortel Information
Networks is an Internet service provider furnishing wholesale
Internet services to other ISPs and Northern Telecom customers.
Digitel was selected to purchase this division by Nortel Networks
due to Digitel's 16-year history as a Nortel customer. 6)
CellStar has signed an agreement to distribute OEM and
aftermarket accessories to U.S. Cellular. CellStar will provide
custom packaging of carrier-branded accessories and will
distribute them to retail and distribution center locations for
the wireless carrier.
Wednesday, July 14: 1) Ericsson and Marconi Communications have
strengthened their existing co-operation agreement for
Synchronous Digital Hierarchy (SDH) products. Ericsson may now
include the full range of Marconi Communications' SDH
transmission equipment into its total network solutions. The
companies anticipate that the agreement will expand sales
opportunities significantly. The new seven-year agreement builds
on the existing SDH agreement between Ericsson and Marconi,
signed in 1995. 2) Motorola and RadioMobil of the Czech
Republic have signed a contract to deploy a General Packet Radio
Service (GPRS) system on RadioMobil's 'Paegas' GSM network. The
initial GPRS network will cover the major cities of Prague and
Brno, enabling RadioMobil to offer its customers an unlimited
range of new data services via their mobile phones.
Thursday, July 15: 1) CellStar announced that it has completed
an agreement to distribute wireless handsets, fixed terminals,
and accessories for Globalstar Americas Corp., the Globalstar
satellite communications licensee that will serve the seven
countries of Central America: Belize, Costa Rica, El Salvador,
Guatemala, Honduras, Nicaragua and Panama. 2) Motorola announced
that the U.S. Army Aviation and Missile Command has awarded it a
$44.8 million contract for the design, development and
integration of 64 Tactical Operations Centers (TOCs) over the
next five years. 3) As part of its ongoing effort to
restructure its financing, Iridium LLC announced today that it
would invoke the 30-day grace period allowed for payment of the
$90 million in interest due today on its $1.45 billion
outstanding senior notes. 4) Lucent reported that it has signed
an agreement to acquire SpecTran Corp. for about $64 million or
$9 a share, plus the assumption of $35 million in SPTR debt, in
an all-cash tender offer.
COMMENTARY
Highlights of Earnings Reported this Week:
Motorola - Q2:99, Actual $0.44, CSFB $0.40, Consensus $0.41
Motorola held a conference call Wednesday, July 14 ,1999 to
discuss Q2:99 earnings results. The company reported Q2:99
operating EPS of $0.44 beating our estimate of $0.40 and the
consensus of $0.41.
Revenue growth of 7% just met our expectations as growth in
the Personal Communications and Semiconductor sectors were
offset by declines in Network Systems and Commercial,
Government and Industrial sectors.
Cost benefits from prior restructuring events were evident in
results. Motorola management has executed on its commitment
to realign, right-size and reduce headcount in production and
other areas of the company.
We raised our FY99 estimates from $1.91 to $2.05 and FY00
from $2.74 to $2.95. Despite the upward earnings revisions,
MOT's current valuation, trading at 32X FY00 combined with
Iridium uncertainty prompted us to maintain a HOLD rating on the
shares.
DSP Communications - Actual reported $0.22, CSFB $0.24,
Consensus $0.21
DSP reported earnings per share of $0.22 for Q2:99 versus
our expectations of $0.24. Consensus estimate was $0.21.
The key revenue drivers for this quarter included strong
demand for CDMA products and solutions. CDMA customer growth
continues to surpass expectations boosting opportunities.
We fine-tuned our estimates for FY99 to $0.93 from $0.97.
FY00 estimates unchanged at $1.15. Maintain BUY. Price
target $35.
Preview of Earnings for Next Week:
Ericsson - Investment Summary
Ericsson's Q2:99 results are scheduled to be released before
the opening of the market on Friday July 23, 1999. The
conference call will follow the release and is scheduled for 9
:00 am EST. The Conference call phone number is 212-896-6026.
Ericsson Q2:99 results should continue to be hampered by the
ongoing restructuring programs that are in place. As the
company does not account for these in the form of one-time
charges, the results will continue to include these as part
of the operating scenario. Thus, we forecast Ericsson to
report $0.13 per share versus $0.21 per share last year. The
consensus estimate is $0.15. Management guidance calls for
earnings to be down 40-50% from last year based on its
expectations for restructuring expenses.
Management changes announced abruptly last week will be a key
highlight of the earnings discussion. We believe two factors
played a heavy role in the management changes: 1) the slow
pace of cost cutting program implementation; and, 2) delays
in naming a CFO. We expect that the company can address
these issues more clearly in this upcoming conference call
and provide better insight into the strategic decisions
required to improve corporate financial performance.
We believe Ericsson's wireless infrastructure business will
be the highlight of the quarter. Demand for Ericsson's
infrastructure equipment has been extremely strong given the
growth of subscribers and usage rates. Major customers of
the company continue to experience network capacity
constraints and are raising their capital expenditure plans
to correct these issues. AT&T and others have announced that
capital spending plans for the year will be raised to deal with
customer issues.
Ericsson has also launched commercial production of the first
of a series of new phones. The T-18, a new software version
of the 788 began shipping in mid quarter. We believe initial
demand for the product is solid and that with the
introduction of a family of T-series products the company can
improve on its handset business financial performance. Its
high end T-28 entered commercial production this month and we
anticipate that this product will ship at the end of July.
We believe commercial volumes for the T-28 are likely by
September as we enter the Q4 selling season. |
