About Euro-centrism:
- Most of the world's mobile infrastructure has been installed by European companies. According to Merrill Lynch research, during the 18 months to December 1998 Nokia and Ericsson increased their mobile network market shares by 4-5 percentage points. Motorola's share collapsed, Lucent's stayed flat and Nortel's crept up by 1%.
- Most of the mobile phones sold in 1998 were made by European companies. The combined market share of European companies increased, led by Nokia's and Alcatel's big gains, which more than offset Ericsson's slight volume decline. The combined handset market share of American companies has collapsed from more than 70% to little more than 20% during this decade.
- These big new standard initiatives that are now reshaping the mobile markets are spearheaded by European companies: TETRA, GPRS, HSCSD, WAP, Bluetooth, Symbian, W-CDMA. US companies are minority partners, have considerably smaller market shares or lag behind in bringing these developments to market. The new wave of standards and technological initiatives are increasingly dictated by companies with largest global market shares. It's that well-known tech maxim: market share = power to set new standards = higher profits. The enormous profits generated by Ericsson and Nokia during 1996-1998 were channeled into digital mobile telephony R&D. That is now starting to bear fruit.
Sound like Euro-centrism? Maybe - but look at the numbers. That's the reality. It's not something widely covered in US media. But what I'm talking about is facts - not opinions. I know that many investors prefer to concentrate on hazy future potential instead of looking at what is taking place here and now. They also choose not to follow closely the developments in GSM markets, favoring CDMA. From a long-term investing POV, this may be an unfortunate choice.
It's true that many of these new technologies like Symbian, Bluetooth and GPRS are almost totally ignored by US commentators. But that does not mean that they are not hugely important. They are being implemented initially in Europe and Asia, so they have a low media profile in USA - where a development like Sprint launching data features in their mobile networks is creating breathless enthusiasm. Even though many European and Asian operators did that half a decade ago. Mobile gear sales in Europe and Asia dwarf the US market. That's where the action is when sales and profit growth are concerned. The big internet phone sales breakthrough will most likely take place in Europe, where the dataphone sales have been building up steam for three years now.
GSM is exploding to 300 million subscribers during next year. China Unicom has committed to 2,8 billion dollars to GSM investment - their CDMA plans are considerably more modest. China Telecom just announced that when it is split to four companies the operators will still remain committed to GSM. We got a huge publicity splash concerning CDMA in China a couple of weeks ago. We are not getting that same PR avalanche on these Chinese decisions that actually are reality.
Qualcomm would do just fine as a chipset manufacturer and licensing fee collector. Instead, they are signaling their determination to make it big in the handset business. They have even said that they will enter European and Chinese markets. That sounds like a potential Stalingrad for this company. W-CDMA licensing fees might be a great bonus for Qualcomm - but don't think that they can't squander every cent of it if they persist on their quixotic goal of becoming a big mobile phone brand. They don't have the R&D, they don't have the brand, they don't have a decent segmentation strategy, foreign distribution networks or solid global market share.
The current W-CDMA sales projections are up in the air. Nobody knows what the actual content for expensive video-streaming might be. Nobody knows whether consumers will pay a stiff premium for big, fancy 3G handsets, when second generation digital phones keep developing at a dizzying pace. Markets are once again falling in love with a sexy, untested technology. It looks like the satellite phone fiasco has taught few lessons. W-CDMA has plenty of potential, but it is not a direct challenge to second generation mobile phones in anywhere but in the richest, most tech-obsessed markets like Tokyo.
A great blind spot investors can exploit is undervaluation resulting from unbalanced coverage. I'm interested in companies that are not fully valued. Not companies that are benefiting from hype. Qualcomm is saying that they aim for 25-26% handset profit margins. Nokia is saying that the recent 23.9% profit margin is not sustainable. That is the difference between setting yourself up for a fall and responsible management of investor expectations.
Here's what's magical about covering American stocks if you are an American: you get away with murder. You can ignore stellar European stocks and not get blamed. You can recommend dogs like Iridium and Globalstar and get sympathy if you're wrong.
The rules are a little different for a European addressing Americans. You miss one run-up on a US company and you are branded a communist agitator. Never mind if your picks have beaten Nasdaq coming and going for years. Never mind if you chose the right moment to shift you stance on Motorola, warned about Ericsson and Alcatel in advance and recommended hidden gems like Omnipoint and Western Wireless at the right moment. One false move and the rabble goes for the jugular. That's the comical thing about nationalistic bias - it's so easy to spot in foreigners and so damn hard to recognize in your compatriots.
I could have decided to write as "Ted Kuttner". I could have worked off-hand references to Britney Spears, Betty Currey and baseball into my writing. I could have chased after trends, jumped onto bandwagons and gone all gooey about the same, mainly American stocks that US commentators are enthusiastic about. Believe me - I could have pulled it off. Instead, I chose a road less traveled. I can't say I'm regretting that.
Tero |
