Wireless problems -
From TheStreet.com -
Wireless Growth Story Becomes a Tall Tale
By Cody Willard
Special to RealMoney.com
02/18/2003 01:34 PM EST
Click here for more stories by Cody Willard
After months of denials and sleight-of-hand movements by component suppliers, cell-phone manufacturers and Wall Street analysts, the realities of a wireless inventory glut are now beginning to show.
Within the past week, we've heard from several direct sources that inventory has been building up in both handsets and the components that go into them. That means earnings and revenue estimates for handset vendors and their suppliers will likely have to come down, even if sales to end users hold steady.
Proof Positive
For example, Motorola (MOT:NYSE - news - commentary - research - analysis) told analysts Wednesday at an investor conference that inventories had been beginning to grow in China, of all places. Of course, that's the one country that everyone calls a haven of growth for the industry.
Furthermore, the Associated Press reported Monday on remarks made at the 3GSM Congress in Cannes. According to the story, Park Sang-jin, a senior vice president of mobile communications at Samsung, said that although he expects worldwide consumer sales of 435 million mobile phones in 2003, the total shipped by manufacturers may be lower than that because of inventory issues. (Naturally, he added that Samsung itself doesn't have such inventory issues, but other manufacturers do.)
In its recent conference call, Nokia (NOK:NYSE ADR - news - commentary - research - analysis) also mentioned an inventory buildup in the handset industry.
So, the three largest handset vendors in the world have all acknowledged and commented on the industry's inventory glut. The wireless operators have confirmed this buildup, too, as Verizon Wireless and Cingular have both noted in recent months that consumer sales aren't as high as expected. They've also said that consumers seem to be very price-sensitive and aren't buying nearly as many of the newer, higher-end models as everyone in the industry had been hoping for.
An Ominous Sign
In the past few months, handset makers ordered countless chips and other components as they built and prepared to build tons of handsets. They then shipped these handsets to dealers and wireless operators, which expected consumers and other end users to snap them all up.
Unfortunately, sales to end users have declined, not only in the U.S. but now also in China and other countries, resulting in a glut of handset inventory now sitting on stockroom shelves.
When consumer weakness first began to show up, the handset vendors started to lower their estimates of total sales, from the mid-400 millions to the lower 400 millions.
But now that the inventory glut is becoming increasingly apparent, they're admitting that they won't actually be shipping that many phones. In fact, that's simply the number of phones that will be sold. And if they won't be shipping as many phones as expected this year, revenue estimates will also have to be lowered.
The bad news doesn't end there. If the handset vendors are already recognizing that they won't be shipping as many phones as expected, then they'll revise the number of phones they're going to manufacture. They'll also cut back on how many chips and components they'll be ordering to put into those phones.
Even if suppliers like Qualcomm (QCOM:Nasdaq - news - commentary - research - analysis), which have been doing better than expected and have even been taking Street estimates higher, think they're immune, it's only a matter of time before they start to see the weakness, too.
Wireless as a growth story? That tale just got a whole lot harder to believe. |
