Marden, problem here is that Ericsson promised "new models in 1998" and people assumed that they were genuinely novel products. Now it looks like Ericsson is repackaging their earlier hit 688, adding some new features and recycling the results as "new Ericsson phones". Both 888 and 868 are just the plain old 688 with add-ons. By tinkering with old model platforms instead of doing comprehensive redesigns Ericsson saved R&D money... but risked consumer revolt over old-fashioned phones.
To some extent all companies do this, developing entirely new models is so darn expensive. What Ericsson didn't anticipate when they planned their 1998 strategy was Nokia's string of very extensive and strong model redesigns. Virtually all Nokia's models are entirelly new: new display technology, lower weights, longer stand-by times, new body design, added features. They have rolled out new phones in every price segment and product category. In any other year Ericsson's strategy of coasting on their huge 1997 hits, 688 and 788, and their derivatives, would have worked. But not against the current competition.
The consumers are fickle, so many new subscribers are flooding in that brand loyalty is not easy to achieve. Ericsson's "new" models weigh too much, offer mediocre stand-by times and look like the same black boxes they looked back in 1996. They have said that their new platform will be launched in "early 1999". That could be anything from January to May. If it's closer to May than January it will be very bad.
The problem for investors is obvious: when to buy? It's highly likely that when Ericsson gets their new line-up out they will boost the fortunes of this company considerably. It's interesting to note the classic mistake made by many investors: they sell when the news is worst and buy when the come-back is already old. I know many people who sold Nokia last January, just on the eve of Nokia's 6100 product launch... and 150% run-up in the stock price. Their reasoning seemed flawless: Nokia's phone sale growth had been slowing for 5 straight quarters and Ericsson had 80% sales growth, why not switch? Of course, what they neglected was the fact that Nokia was entering the start of a new product cycle just as Ericsson was starting to tumble off their peak.
So I would expect the same kind of panic to hit Ericsson that gripped Nokia in -97 / -98. Only this is somewhat worse, because Ericsson phones do not have the longevity of Nokia phones: they are hot when they are hot, but they have some shortcomings such as lousy displays that tend to quickly date them. Maybe the best time to buy would be after 3Q or 4Q announcements, which will be gory & depressing. But there is every reason to believe that Ericsson will bounce back after 2-3 lousy quarters. Their -97 model line-up was stellar and we already know they will launch a TDMA/GSM/AMPS worldphone next year.
What I find irksome here is that the Ericsson problems are having an effect on Nokia just as the company is entering their best competitive situation during the decade. Ericsson will never concede that they are losing market share to Nokia, they will blame problems in emerging markets and so make it appear as if the entire industry is in trouble. This is the erstwhile Motorola strategy of "never admit market share losses" and it always hits the share prices of competitors. Nokia is now getting hit without real reason. And Ericsson is getting hit with some reason, while overreaction is highly likely.
So which is a more appealing buy? I think Nokia will bounce back after 3Q results which should show that they are not in trouble. And Ericsson should start recovering in 2Q -99 at the latest - but they will be in some serious trouble before that. If investors are as sheeplike as before, Ericsson sell-off will reach a peak in January, just before new model line, people lose their shirts selling their holdings... and then ERICY stages a big rally. Nokia should peak at the same time ERICY bottoms, I expect they will look invincible after the 4Q results... and then the Ericsson and Motorola models start regaining some of the lost ground and Nokia might stumble a little in its turn. There is a time for cyclical highs and there is a time for
cyclical lows, as the Ecclesiast says.
Well, it's all conjecture. With time these cyclical swings will matter little to our investments... provided we don't sell when these companies are at the last leg of their current product cycle. That is the worst mistake one can possibly make. If somebody wants to realize their profits, January -99 for Nokia and January -2000 for Ericsson would make some sense.
Tero
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