When the Going Gets Tough, Which Stocks Measure Up?
StockHouse.com
By: Warren Shiau, January 12, 2001
It might be best to stay away from shares of Ericsson (ERICY) and Motorola (MOT) for the time being. Nokia's (NOK) unit sales warning will hurt them more than itself.
Nokia is the biggest, highest margined and most profitable cell phone maker. The most recent statistics available show Nokia commanding a 31% world market share compared to 13% for second-place Motorola and just 10% for Ericsson. Preliminary fourth-quarter shipment numbers indicate Nokia's full-year market share will increase to 32%, stealing even more away from its smaller rivals.
Reflecting this, Motorola and Ericsson have fallen even further off their 52-week trading highs than Nokia. They are down 66% and 60%, respectively, trading intraday at $22.43 and $11.68. By comparison, Nokia dropped a relatively light 37%, and is trading at $41.25. Motorola's downfall should come as no surprise to regular readers, as StockHouse chronicled the company's long-term problems in a series of earlier articles.
Nokia's cell phones are hipper and hotter than anything from Motorola or Ericsson, or at least as hip and hot. Since product problems don't exist, Nokia's warning suggests a further slowing in cell phone unit shipment growth. The big problem for Motorola and Ericsson is their poor performance in a year when cell phone shipments grew so strongly. Calendar year 2000 cell phone shipments will come in at approximately 420 million units worldwide, compared to only 280 million in 1999.
"Nokia's warning suggests a further slowing in cell phone unit shipment growth."
While Nokia manages to gain market share and maintain 20%+ cell phone operating margins, Motorola is losing market share, and turning in low single-digit operating margins. Ericsson does even worse, posting market-share declines and big cell phone operating losses. Because of their inferior operating efficiency, the picture will worsen for Motorola and Ericsson if, as expected, shipment growth cools off from the strong 2000 numbers.
Cell phones have become a commodity. To succeed in a commoditized business, companies must focus on superior operating efficiency and endure price competition. Compared to Nokia, it's harder for Motorola and Ericsson to manufacture their products, because they have more platforms with fewer commonly shared components.
Japanese consumer electronics giants Sony (SNE) and Matsushita (Panasonic) want to make strong moves outside of their Asian cell phone strongholds. This will put greater downward pressure on selling prices. Even more pressure will come from Korean companies Samsung and LG Electronics, which are going after market share with aggressive pricing.
The companies with the worst cost structures will suffer the most when demand growth slows and price competition intensifies. Things will probably get worse, not better, for Motorola and Ericsson. Nokia's unit shipment sales warning, which isn't good for Nokia, indicates an even poorer outlook for its two biggest competitors.
investorlinks.com |
