Greg:
Management guided Q2 gross margins down due to three factors: (a) the canceled Hansol PCS contract (for $60mm in 'Q' phones), (b) deferral of some Korean ASIC orders (presumably by Samsung) and (c) slowing 'Q' phone sales to Sprint.
This is a mix issue, rather than a price competition problem. Both ASICs and 'Q' phones have higher margins than 'QCP' family handsets, so arithmetically margins are reduced. In addition, the lost 'Q' sales could likely increase the percentage of Sony shipments during the quarter, which, as I explained before, distort margins.
Wall Street keeps trying to treat cellular handsets as a pure commodity, like DRAMs. But the product characteristics are really very different. Cellular network operators must qualify the phones for their system and train their marketing and service personnel to support the product (all of which creates switching barriers). After this, the handset must be commercially attractive to consumers, some of whom are stupid as rocks and some of whom are technically very sophisticated (hence the need for product diversity and choice).
QC's 800mhz 'Q' phone is, to my knowledge, the first digital phone with such a diminutive form factor that also has NO external antenna. This is really cool. See one, and you'll understand why the handset business is not the DRAM business.
Best Regards,
Gregg |
