Placing Bets on a Web Without Wires
Forget about DSL, T-1 lines and coaxial cable. If you believe much of the talk, cell phones will soon be the most common way for consumers to connect to the Internet -- whether while driving to work, shopping or basking on the beach.
So it is no surprise that some people on Wall Street have become enamored with a convergence of telephone and computer technology. "The Internet is huge, wireless is huge, therefore the wireless Internet should be huge," said Rob Gensler, portfolio manager of the T. Rowe Price Media and Telecom fund. Indeed, the Gartner Group, a market research firm, expects 40 percent of mobile phone users to switch to so-called smart phones or other portable devices that connect to the Web by 2004.
The infatuation has put many stocks with wireless Internet prospects on a wild ride. A rally started in November, after NTT DoCoMo of Japan introduced the I-mode phone, a multimedia, Internet-linked cell phone that lets users download news, e-mail and even popular cartoon characters. The phones became an instant hit.
Believing that the American and European markets were not far behind, investors bid up the stocks of big handset makers. The American depository receipts of Nokia, the world's largest maker of mobile telephone gear, more than doubled, from $22.3125 on Oct. 1 to a high of $59.3125 on May 1. Smaller, riskier stocks perceived to be bets on the wireless Internet rose, too.
Many of the stocks -- though not Nokia -- took a beating in the spring sell-off, leaving them at tempting prices. But analysts caution that the adoption of wireless Internet standards by the telecommunications industry may be a slow process.
"When you get new technologies like this," Mr. Gensler said, "they always take longer than you think." While most industry experts do not question that mobile gadgets will someday become mainstream gateways to the Internet, they note that major technological issues remain.
Europe and Asia use a common digital standard, called the global system for mobile communications, or G.S.M., that lets users call among 120 countries. But the United States has several competing standards just within its borders, and different companies' fortunes are tied to the different standards. If nothing else, that complicates sorting out the winners from the losers.
In addition, cell phones with access to the Internet rely on a software standard called wireless application protocol, or W.A.P., an emerging technology that scales down Web content and crams it onto small screens. Many people believe a new protocol will replace it as early as next year. So the early leaders, especially in the software business, could easily be displaced, many analysts say.
Portfolio managers and analysts tend to divide the sector into three areas: cell phone makers like Nokia, wireless service providers like Vodafone AirTouch and an assortment of wireless software application providers, which offer the riskiest play on the theme.
The Nasdaq sell-off and the subsequent volatility appear to have increased interest in the more staid companies. "After the Nasdaq went down, there has really been a mood shift in that investors are paying attention to the established wireless companies like Nokia and Ericsson," said Mirva Anttila, a Josephthal & Company analyst.
Consumers do not need to pay much to upgrade their phone sets, because service providers essentially subsidize them. But such phones carry greater margins for the manufacturers than do regular sets, most of which are now distributed free by providers.
Nokia's A.D.R.'s trade at $58.375, up 22.2 percent for the year and just a tad off their high on May 1. Ericsson A.D.R.'s, at $22.3125, are up 35.9 percent for the year but down 15 percent from a high on March 3. Ms. Anttila has 12-month targets of $65 for Nokia and $31 for Ericsson.
Mr. Gensler, while bullish on Nokia, thinks service providers like Vodafone and Sprint PCS, a tracking stock, are good bets.
Wireless carriers obviously see Internet access as a way to pump up margins, because users are likely to stay online longer. A crucial issue for these companies is their ability to control their customers by pre-installing browsers that provide access to services from banking to e-mail. That will let them charge banks and other companies for premier positioning. Conservatively, analysts say at least 10 to 15 percent of service provider traffic will be data-related by 2005.
Vodafone A.D.R.'s, now at $47.9375, are down 24 percent from their high of $63.0625 on March 9. Sprint PCS, at $57.1875, is 13 percent off its high on March 31.
Investors may find even more potential in wireless application software providers, many of which are off more than 50 percent from their highs. But some portfolio managers are wary because of the technology issues involved and suggest buying only on further weakness, if at all.
"We're not going to be surfing and looking at pictures on mobile phones for five years at least," said Donna Jaegers, assistant portfolio manager of the $3.2 billion Invesco Telecommunications fund. "We just don't have the spectrum." She cautioned that the industry could be in for a shakeout.
But J. Michael Gallipo, a manager at Monument Funds in Bethesda, Md., sees some bargains. He likes 724 Solutions, a Toronto software maker that has joined with Bank of America and Wells Fargo, among others, to make wireless transactions secure. Some analysts say banks will be the first to make money using wireless transactions. The company went public at $26 in January, rose to $231.875 on March 1, and closed on Friday at $56.
Another of his picks is Phone.com of Redwood City, Calif. It offers W.A.P. technology that gives cell phone users access to e-mail and the Web. At $92.5635, the stock is down from $200.75 on March 10.
By Kate Berry, June 11, 2000
nytimes.com
|
