Look - I'm sure we can skip the direct insults without losing either content or entertainment value of these posts. What is the point of accusing me of lying when anyone can pick up a copy of Wall Street Journal from last Tuesday or Wednesday and read the article on regional CDMA operators? Luckily, I still have the issue lying around somewhere and can quote from the piece verbatim next week. I think the stumbling CDMA operators included Airtouch, MCI, BMC, etc - We can get back to this when I fish out the article.
Jeff, thanks for the numbers. They were from the beginning of this year and confirmed that the growth rate of GSM is anticipated to drop to under 100% as we enter 1999. Looks like that may not be happening. This divergence between projected rates and what is actually happening should interest every mobile investor.
Gregg, there were over 1 million GSM subscribers in North America in 1997 and over 2 million CDMA subscribers in the same year. If the growth rate of GSM now suddenly accelerates to above 150% and CDMA is left in the dust this cannot be explained by "minuscule" base of GSM users in 1997 - there were only twice as many CDMA users around at the same time. The growth rates can and should be compared. GSM's growth should be winding down - not suddenly picking up.
We all know that investing is a game of expectations. There are certain assumptions built in the stock prices of world's leading GSM company (Nokia) and world's leading CDMA company (Qualcomm). One of these assumptions is that CDMA will zoom far ahead of GSM in the US marketplace. If it now turns out that GSM will end up getting 26% of the US market instead of 20%... even a 4-6% shift would have enormous implications.
First of all, many major companies like Sony and Samsung have concentrated most of their efforts in the American market in CDMA, because they bought the "juggernaut" theory of CDMA's triumph. As a result of this, the GSM market is now being utterly dominated by Nokia. Any shift from the projected market shares mean that the huge crowd fighting over CDMA phone market will suddenly face a smaller piece of the pie they expected. And Nokia will suddenly find itself controlling the GSM market that is bigger than expected - bagging most of the upside.
That 5% price hike in Nokia phones is an important piece of the puzzle. I have never seen a phone company raising prices as Christmas approaches. Never as in not ever. This means that the ground has shifted... there is something going on that has confounded even Nokia's market research. Why did every market analyst on Wall Street forecast 50-60% growth for Nokia handsets at best in 3Q when the final number was 94%? What happened? Where did the stunning 30-40% extra growth come from? I know it didn't come from Europe... Nokia already had 30% of the market and all the European operators have been reporting sluggish 40-60% growth. China's growth is not accelerating either.
That leaves USA. The country where GSM is growing at 158%, against all expectations. The country where Carnegie is projecting 400% growth for Nokia digital phone sales in 1998. The country where Qualcomm's sales growth in 3Q could not beat the expectations. The country where Nokia is announcing historical price hikes. The country where WSJ is now reporting problems for regional CDMA operators.
I have seen the marketing failure of CDMA in USA. Not even the sales personnel know about the differences among digital standards. Average buyers are totally at sea. And in 1998, the year when digital phones started to outsell the analog phones for the first time in US history CDMA manufacturers dropped the ball - no 1998 CDMA models in high volume sales for the entire year. Startac selling only in Kansas City with half of the fourth quarter already gone. Q-phone, slated for late summer, pushed ahead time and again. No national awareness, no brand, no volume sales before Christmas. I've heard the same story about Sprint returning the Q-phone because of "chip problems" and I think it's plausible.
The mother of all earnings surprises is cookin'... we have seen all the ingredients. Put it together, people. Before Wall Street does.
Tero
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