Do not get all wrapped around the axel shaft due to press releases. Mother Nature is still in charge.
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Ericsson, Nokia Eye Each Other's 3G Claims Warily
By BUSTER KANTROW
Of DOW JONES NEWSWIRES
STOCKHOLM -- Nokia Corp. of Finland (NOK) and Telefon AB LM Ericsson (ERICY) of Sweden are running neck-and-neck in the battle to supply equipment for third-generation mobile telecommunications networks.
Or are they? It depends on whom you ask.
Nokia, the world's largest manufacturer of mobile phones, has boasted lately that it is in step with Ericsson in 3G wireless equipment sales, each with about 30% of the market.
"In third-generation mobile infrastructure, we believe that we share the leadership position with our nearest competitor," Nokia chief executive Jorma Ollila crowed as the company released its third-quarter financial results two weeks ago.
Not so, Ericsson has shot back. It staked its claim to No. 1 - alone - when it released its own third-quarter results last week, saying its leadership in 3G remains "unquestioned."
Given a chance by a questioner to respond to Nokia's claim, chief executive Kurt Hellstroem was dismissive.
"I think you'll have to show me the evidence that we are second to anybody in 3G," he said.
"We have more contracts, we have more value in the contracts, and we have more potential value in the contracts than anybody else," he said. "I think we really are on safe ground when we say that we have 40% market share."
Beneath the back and forth lies a spirited rivalry between neighbors who dominate the wireless world. Nokia is the world's largest manufacturer of mobile phones, while Ericsson is the largest supplier of the equipment for the networks that wireless voice and data traffic travels over.
But the two companies' fortunes have diverged recently. For the last several years, Nokia has been a stock market darling whose explosive growth and then resilient performance in a severe market downturn have cast a long shadow over its struggling Swedish counterpart.
As Ericsson's phone unit has posted repeated deep losses, Nokia has built a wide advantage over rivals in the handset market. And, meanwhile, it's publicly set a target of climbing to the top of the heap in 3G equipment, an outcome that would be both a psychological and financial blow to Ericsson, which gets about 80% of its revenue from systems sales.
Both companies have suffered on the systems side this year. Demand for mobile gear has slumped as carriers conserve cash and attempt to whittle down debt piles amid slowing subscriber growth and economic uncertainty in North America and Europe. For the third quarter, ended Sept. 30, Nokia said systems sales were down 14%, while Ericsson reported a 11% fall.
But the infrastructure suppliers are counting on 3G to revive their growth. The new networks, expected to be launched in Europe by late next year, promise phone users high-speed access to the Internet, video images and other new services over their handsets. Operators in Europe alone have committed more than EUR100 billion for licenses to build the networks.
The advent of 3G offers Nokia a fresh opportunity to extend its reach on the networks side. Until now, mobile networks have used one of three main technology standards: GSM, the dominant standard in Europe and the most common in the world; CDMA and TDMA, the most prevalent standards in the U.S.
While Ericsson has sold all three, Nokia has focused on GSM, limiting its customer base. But with 3G, networks will converge into three new standards: Wideband CDMA, which is expected to be the standard of choice for GSM and some TDMA carriers; EDGE, a less powerful standard that's been embraced by some American carriers, including Cingular Wireless just this week; or CDMA-2000, a rival standard that is being pushed by Qualcomm Inc. (QCOM) for CDMA carriers.
Analysts have estimated that about 80%-85% of mobile subscribers will use WCDMA networks.
Nokia is selling equipment for both WCDMA and EDGE, and with a larger market to pursue, observers say it has clearly been gaining ground on Ericsson. But figuring out exactly where each stands is difficult.
It's harder, for one thing, to keep track of sales of base stations than mobile phones. So far at least, although many 3G contracts have been signed, very little equipment has been delivered. Simply counting contracts isn't a telling barometer, because operators are of different sizes. And many carriers don't divulge the value or details of their orders. As a result, a definitive arbiter of 3G market share isn't to be found.
For its part, Nokia estimates that it has about 30% of the 3G market, and, so, roughly, it says, does Ericsson. It says it bases its figures on its own estimates of the equipment that each supplier has agreed to deliver to mobile operators over the next two years. It concedes that is a guess, since it does not know all the details of its rivals' contracts.
"It's an estimation based on our experience of this industry," said Riitta Mard, a spokesman for Nokia's networks division, who says Nokia is "sharing leadership on 3G, approximately on par with our nearest competitor."
Pressed on its claim of parity with Ericsson, though, Mard says its contention applies only to W-CDMA - not to the entire 3G market. As does Nokia's oft-repeated (and unqualified) target of 35% market share in 3G.
"This is our 3G: Wideband CDMA," Mard said.
Ericsson spokesman James Borup says the company's own 40% estimate is for WCDMA only, not for all 3G standards. He said Ericsson has so far received all or a piece of 34 of the 57 WCDMA orders announced worldwide, as well as a handful of EDGE deals and a single CDMA-2000 contract.
Borup says the company's calculations are based on projected sales from confirmed contracts.
In the midst of the market share debate, analysts say the landscape could shift as the time comes for suppliers to deliver equipment in large volumes to the operators. If a supplier falls short on a contract, a rival will likely get the chance to step in and take over.
"While I can understand why vendors have issues with who's leading the charge to 3G, the most telling thing will be who's actually deploying networks that are up and running," said Jason Chapman, an analyst with Gartner Group in London.
For now at least, most industry observers give Ericsson the advantage. "Ericsson is still, any way I look at it, the leading company in 3G," says Mika Paloranta, an analyst with Nordea Securities in Helsinki. "Nokia is a very strong No. 2, but I think it's going to stay that way." |
