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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (38810)	2/1/2001 7:08:13 PM
From: Eric L	Respond to of 54805

Frank, re: QCOM & NOK - Leading Wireless Sector Turn As promised earlier. Just a few key points that came out of the Nokia conference call & press conference Tuesday that relate to general industry issues that are causing uncertainty with analysts that potentially retard the commencement of investor return on wireless data in general and CDMA specifically: - Nokia GPRS handsets start shipping in volume 3rd quarter with millions 4th quarter - Nokia W-CDMA Network infrastructure starting to ship 3rd Q 2001 - Nokia W-CDMA handsets starting to ship 3rd Q 2002 While many questions focused on handsets JO reminded that Nokia has a significant growing network business and they are targeting 35% market share in 3G infrastructure. Nokia will not be first to market with either GPRS or 3G terminals ... but generally higher confidence is given to Nokia than other European or US manufacturers that they will meet stated timetables, and quality and performance will be good. Obviously the industry would like to see them targeted earlier, but this sets an element of reality in place. These are some of Jorma Olillas's comments from the Conference Call Q&A yesterday that give me some confidence about the sector turning. nokia.com Q: 3G CONFIDENCE - How confident are you that you can maintain networks margins within Nokia Networks in 2001 especially as you are increasing investments for 3G rollout? Also, What is your confidence in 3G in general? Timetables? Handsets? JO: Our R&D expenditure is high today and has been high for the last 3 quarters gearing up for GPRS & 3G Yes we will have to continue relative to a percentage of sales but it is not as though we have a high hill to climb. The high teens is the right guidance in my book - this sort of 16-19 represents to me business as usual when you are shipping gear - better with shipping high volumes and high mix normal margins while still investing heavily in R&D - high teens set as a target. As for confidence in 3G ...Yeah I mean ... my word .. yes ... I really feel good about our timetables for 3G. Yes there is a slight phasing with infra earlier than phones ... with handsets that happens every single time. This sort of phasing in this industry is common. It started with analog <good longer discussion on phasing snipped> That is the way the dynamics go. There are some things that human beings just can't do anything about. This sort of phasing is just part of what happens in this industry I feel very good about the timetables. It is a statement of confidence that this industry will happen as we have indicated. I hope you will take this as a statement of confidence that this will happen, rather than the other way around. [Throughout the CC their is great emphasis on 3G - Always concern about handset phasing. It is as old as the industry, and we are seeing it with 1x now, and will see it with 11xEV in the future.] Q: GPRS v. 3G - Have you gained experience in GPRS development that you can utilize in 3G business development? JO: Well I think the learning really is that our range of 3G products ... you know we always put more emphasis much more emphasis on 3G than on GPRS ... that's a resource question ... you have to stay focused .. so I think the learning is that we have a really broad lineup in 3G whereas in GPRS it will not be hitting all the market segments as we do in GSM but it will still be substantial. As I said earlier in the press conference we told our timetable to the market place for the GPRS handsets about 15 months ago and we have not slipped on that schedule so we are performing as we indicated early on and with roll out of volume shipments in the 3rd quarter and with millions following in the 4th quarter, [GPRS handset deliveries from Nokia (others will be shipping earlier) will remove an important element of uncertainty] Q: MARGINS: What are the factors that enable you to expect higher profitability for Nokia Mobile Phones by the end of the year? (a very long question and related primarily to 20%+ margins ... because top line growth will be excellent anyway and market share will continue to increase anyway) JO: Yeah, Yeah, OK. That's a big ONE question. I'll try to do my best, I always do. First there is the issue of the economy. There is a slowdown that started 2nd week of December in the US and some slowdown elsewhere but really its the US we are talking about was very clearly seen in the US in December and continues to be seen in January and impacts orders for 1st Q but also there is some slow down in rest of the world - so I would be looking at a situation where the economies particularly in the US and the related consumer confidence and demand thereby would be picking up towards end of 2md quarter Also what I would be looking at throughout the year our product launches because of new models including GPRS AND the Economy picking up towards the 3rd and 4th quarter and the customer demand ... all those factors sort of adding to having a healthier second half. Our product launches throughout the US including GPRS means lead to a healthier mix of the phones in 3rd and 4th quarter [read data focused rather than low end]. GPRS I think will have to a significant impact ... you know, when we say millions, we mean millions and not one point something millions. So that is significant volumes and so with our other new products that we will be launching later this year So here are some of the factors that add up quite nicely that I think we are going to allow us come back quite nicely from a somewhat sluggish 1st quarter that the industry is having. [These comments somewhat parallel Irwin - lower ASP's this quarter and rising as we get into 1x more in later quarters - of course neither Irwin or Jorma can control the economy in the US, the biggest market for both NOK & QCOM but both 1x and GPRS can start to remove some fear and uncertainty about wireless data while improving ASP & margins] Obviously these are just a few clips out of a lot of information, but I think Nokia set a good tone, set some credible timetables, set some aggressive but obtainable objectives ... and as they achieve them ... and QUALCOMM obtains theirs ... economy willing ... analyst and investor confidence in the sector will return. It will be about time. [Off the general topic - my read of the analysts is their biggest NOK fear is that by going for top end growth to continue to build market share, which they will, margins might be hurt. So the product mix (higher end, data related) of handsets becomes crucial] - Eric -