From ML this morning:
ML Telecom Equipment Team: Mobile Industry Update (Anita Farrell 44 20 7867 2996/Adnaan Ahmad 44 20 7772
1507)
• Following months of negative news flow hitting the wireless equipment sector, we believe now is the time to tackle the individual issues in order to add some transparency to this “uncertain” environment. We believe the recent worries over vendor financing, weak mobile handset demand (leading to inventory build-up) and declining capex programs are overblown.
• In our opinion, handset demand is strong and it will continue to remain strong, growing at an estimated 40% CAGR from 1999 through 2003. Furthermore, we believe Average Selling Prices of mobile phones will experience slower declines than in the past, thanks to the release of higher value-added products.
• We believe, recent evidence of inventory build-up is a result of poor inventory management (from select mobile handset manufacturers) and the aftermath of a shortage of supplies in the first half of the year, rather than a lack of consumer demand for handsets. We do not believe Nokia is having any problems with inventory build-up.
• We believe the mobile data revolution will occur, and that current versions of WAP should not be viewed as the future of mobile internet. We do not believe that mobile operators will cut their capital expenditure programs for mobile
infrastructure in the coming years. We believe that 2G infrastructure spend will continue to accelerate through 2002, and that 3G spend will begin to kick-in during 2002, hitting full stride in 2003 through 2006.
• We believe that vendor financing will play a very important role in the build-out of 3G networks, but will not hinder the growth of the incumbent equipment suppliers. In our opinion price and financing arrangements are far from being the most important factors when choosing a 3G supplier. Much more important will be the ability of the supplier to deliver a seamlessly integrated, fully interoperable and “on-time” system to its customer. We believe Ericsson is the only supplier in the market, which can satisfy the technology needs of virtually every operator in the world (although, unfortunately it does not have the capacity to supply everyone). |
