Cell phone executives see slow recovery
By Lucas van Grinsven and Sabine Bub
Reuters
(11/19/01, 01:44:45 PM EST)
LONDON/MUNICH -- Cellphone executives say the global industry found its low in the third
quarter and is now starting to recover, but many add that a recovery will be slow in coming and
the recent stock rally will prove premature.
Nokia Chief Executive Jorma Ollila became on Monday the latest in a string of executives to
predict a revival in the mobile market, but told journalists it would not be ''necessarily a sharp
one.''
Earlier, German chip maker Infineon said demand for cellphone chips is picking up, while its
parent company Siemens said last week it saw a positive development at the handset division.
Meanwhile, Flextronics, which assembles phones, said demand for handsets was improving.
``From different corners of the world, positive cellphone reports are emerging,'' said Merck-Finck
analyst Theo Kitz.
Meanwhile, shares in the cellphone industry have already run ahead of the recovery. Finland's
Nokia and Sweden's Ericsson have almost doubled from their lows two months ago.
Many say that the rally, which is also apparent in other tech sectors, has come too soon. Share
prices are still far from their record levels last year, but profits also are well below last year's
levels. It means that share prices measured in relation to per-share earnings look stretched, once
again.
``We're worried that we're entering a mini-bubble,'' said Merrill Lynch technology strategist Steven
Milunovich.
Any justification for these lofty valuations can come only from the return of hyper-growth, but
market forecasters for the cellphone industry do not see a return of the runaway growth of previous
years when annual sales rose 50 percent or more.
What's more, prospects for growth look distant, with telecoms operators currently cutting budgets
by some 10 percent next year.
Torbjorn Nilsson, Ericsson head of strategy and markets, told journalists on Monday he could not
yet see any optimism returning to telecoms operators.
Growth in recent years was driven by heavy subsidies from operators, which were eager to sign up
customers. They were expanding in affluent markets that started off with few cellphone users.
That situation has changed dramatically. Subsidies have been cut back because debt-burdened
operators are now focusing on profits. Markets have become saturated, making it difficult to sell
new phones to customers who scrutinise household bills at a time of economic uncertainty.
In addition, new attractive services such as video email, which could boost demand for more
advanced phones, are not yet on the market.
The few new cellphone gadgets that will be on offer this winter, such as color screens and
always-on Internet connections, will not be enough to thrill the mass market, said Gartner analyst
Ben Wood.
``We've seen some reality coming to the market in the past year. I think we will eventually go
back to a more normal growth curve of some 10-15 percent,'' he said.
For real indications about potential growth, some analysts turn to orders of components such as
crystal elements, which are needed in every single display for handsets.
The number of these orders fell more steeply year-on-year in October than in August and
September, when the Christmas production ramp-up started.
That can mean only one thing, said ING Barings analyst Hendrik Zonnenberg.
``End demand is not there, and that's not good for fourth-quarter growth. We're still bumping along
the bottom. The upside potential looks very limited.''
A new range of products, which Nokia unveiled in Barcelona earlier on Monday, will not be
shipped in time for Christmas.
Nokia shares were punished for its missing the key holiday season. The shares fell 2 percent in a
flat technology market.
Earlier on Monday Gartner said sales of handsets to consumers accelerated their decline in the
third quarter, off 10 percent compared with the year-ago period.
If the Christmas period does not bring the usual jump in sales, shipments are likely to drop below
400 million units for 2001, Gartner said. That is 10 percent below last year and the first drop in the
industry's short history. |
