re: Matt Hoffman of Soundview on Nokia 1xRTT & Sprint PCS
research.soundview.com
Nokia CDMA Handset Rebound? Heavy Holiday Promotion At Sprint PCS Should Help 4Q02
There has been longtime speculation about whether Nokia will be approved at Sprint PCS by year-end. Our checks confirm that Nokia will indeed be included in the Sprint PCS holiday offering this year - the first time Nokia is represented at PCS. The only barrier to the sale of at least 500,000 handsets into the Sprint PCS channel this Christmas is the final approval of the units by Sprint PCS.
Nokia’s 1X handset is currently getting through the lab approval process and must prove it can handle the carrier’s atypical software demands - including browser-based mobile originated SMS.
That said, we believe the most interesting aspect of the Nokia CDMA offering is price. Given the carrier’s financial issues and the high relative cost of 1X handsets, the prospect of Nokia’s cash pushing decisions at PCS does not surprise us. In terms of details, we believe the reason Nokia is finally getting traction at PCS is the low wholesale price of its 1X phones and the massive marketing dollars (believed to be in excess of $10-$15 million) the company is prepared to inject into the Sprint channel this Christmas.
Based on our checks, we also believe the wholesale prices of the Nokia 1X units are well below other 1X products on the market, and will be in the $125 range (about $20 under competitors’ existing products), with a net somewhere under that price point when those substantial marketing funds from Nokia are included.
While a half million units are surely important to Nokia, 1X will still be well under 5% of sales for Nokia in 4Q02. What is far more interesting is the impact of Nokia’s traction on Qualcomm’s top line and that of its customers. Nokia is the only major OEM not using Qualcomm’s 1X chips in its handsets.
We believe Samsung is slated to be at least 50% of Sprint PCS’s sales in 3Q02 and 4Q02, and with the emergence of Nokia at PCS there is likely to be less room for QCOM’s other customers including Audiovox, LG, Sharp, Sanyo and Kyocera at the second largest CDMA carrier.
Nokia’s entry into PCS should put pressure on CDMA pricing in general and will hold volumes under expectations for several QCOM-supplied OEMs, and thus we remain cautious on QCOM shares right now. Motorola has little traction inside PCS and is instead concentrating on Verizon - a situation we see changing little this year.
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CDMA 1X:
Nokia’s 1X portfolio currently consists of just the 1X voice-only 6370 model which began shipping in June to Leap Wireless.
With additional launches in 2H02, the company stands to regain some of the market share it has lost in CDMA over the past several quarters.
Nokia uses internally developed 1X chipsets (non-QCOM), so any market share gains that Nokia experiences will be a loss to Qualcomm. However, we would note that Nokia’s 1X models lack a critical feature for the domestic market: A-GPS location technology.
While Nokia will clearly have an impact on CDMA (see above for details on Sprint PCS prospects), without an A-GPS model ready until 1Q03, its impact will be felt mostly on pricing and less so on volume.
New models include:
• 3585 - Entry-level 1X voice and data phone with J2ME, X-HTML browser, USB port, R-UIM support, and changeable covers. Shipping 2H02.
• 6385 - Along with the 6370 model, the 6385 is a business class, classic-styled 1X phone expected to ship in 2H02. Features include PC connectivity via USB or serial cable, two-way text messaging, extended phonebook/PIM functionality, and downloadable ring tones. <<
- Eric - |
