re: A CDMA Sub Forecast or two.
<< A wise investor ignores the data points at his own peril. >>
Two firms view.
The first is slightly more conservative than my own, but impeccable logic all the same.
>> We expect Qualcomm will have to lower its 2001 cdma handset forecast. Slowing replacement market demand and continued weakness in Korean subscriber growth make it increasingly unlikely that 2001 cdmaOne handset shipments will reach 80 M units, Qualcomm's current estimate. If the company reduces its handset estimate it will be the second consecutive quarter (90 M to 80 M in April) it has done so and will likely pressure the stock.
While the cdmaONE subscriber base is growing, our carrier model suggests the world will add 38 M new cdmaONE users in 2001, which is a 46% growth rate, but off approximately four-percent from expectations due to a delayed recovery in Korea. Moreover with Verizon, Sprint and Korean carriers slowly converting to 1XRTT, we do expect the CDMA replacement rate will fall below the average for all mobile subscribers. In fact we believe the general replacement rate could fall from 36% to less than 30% this year, which would result in 24 M phones for the CDMA replacement market.
When combined with 38 M new subscribers, 2001 CDMA phone sales would total 62 M units - 23% below Qualcomm's current expectations. Our worst-case CDMA handset sales forecast is 55 M units, 30% below Qualcomm expectations. In our opinion, the company's current forecasts are too high and its chipset manufacturing plans could oversupply the market later this year.
CDMA Subscriber Growth Forecast, Net Additions (Millions)
Q101(A) Q201(A) Q301(E) Q401(E) Total(E)
North America 4.6 4.3 5.4 6.4 20.7
Latin / South America 2.0 1.7 2.2 2.7 8.6
Asia Pacific 1.0 1.6 1.6 1.9 6.1
Other 0.0 0.6 0.6 0.7 1.9
Total 7.6 8.2 9.8 11.7 37.3 <<
Another firms view is slightly more bullish:
We are more optimistic that last quarter's substantial downward estimate revision is sufficient to reflect the current economic slowdown. While the global CDMA handset estimate could still be revised down from 80M units to 70- 75M units, we see offsetting factors from up-front licensing fees, chipset share gains as NOK transitions its CDMA product line, and higher 1X Chipset ASP's.
The recent Nokia contract helps solidify W-CDMA licensing, but we maintain our thesis that the 2.5G cycle (primarily GPRS) will dominate the handset market for the next several years, prolonging the growth curve from new W-CDMA licensing streams. With a slow roll-out on 3G, Qualcomm will continue to be impacted by product cycles and the health of a few select markets through 2003/2004.
Qualcomm is riding a positive wave of news flow in recent weeks, as several CDMA suppliers and carriers have shown signs of strength even amidst the downturn. The CDMA market is still predominantly driven by North America, South America, Korea and Japan - markets that have not been impacted to the same extent as Europe in the past quarter:
In North America, wireless penetration at 40% still trails many European markets which have reached 70% penetration rates on the strength of rapid subscriber adds over the past several years. We can expect several more years of subscriber additions for CDMA carriers Sprint, Verizon and Alltel. We also expect continued migration of analog users onto digital networks. During an economic slowdown, carriers such as Sprint which target value pricing plans to consumer base can see a greater success signing on additional subscribers.
In Latin America, the Argentinean economic recession, where unemployment has reached 16% this year, is putting a damper on Brazil and other countries in the region. Subscriber growth in underpenetrated markets still can withstand a recession as it did with Asia-Pacific in 1997-1998, and many of the Latin American countries are still seeing subscriber growth rates of 25-50%. However, this remains a key market for Qualcomm. The CDMA Development Group estimates that Latin America represented about one-third of CDMA net additions last year.
In Korea, the market is showing the first signs of picking up after a 1-year fall-off in demand due to high penetration, a handset subsidy ban, and market share restrictions on the largest carrier, SK Telecom. In Q1:01, handset sales in Korea were 2.7M versus 5.4 million in Q1:00. The market is now seeing rising replacement demand as 1X handsets come to market and SK Telecom is again free to aggressively market its service to new subscribers. To highlight this strength, a Korean publication reported that handset sales have rebounded to 4M units in the June quarter. This past week, however, Korean Minister Yang Sueng-taik commented that there are no plans to restore subsidies to the mobile phone market, which should moderate how many units are solid in the country once 1X handsets ramp into larger volumes. Still, indications from Korean OEM's that we spoke to on our June visit indicated that handset sales for 2001 should be closer to 13-15M, somewhat improved from earlier expectations for flat growth over the 10-12M in 2000.
With trends looking more favorable for the CDMA carriers in 2001, we are growing more confident that estimates will not require another substantial downward revision in 2001. <<
It will be interesting to look back at end of year.
- Eric - |
