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Technology Stocks : Ericsson overlook? -- Ignore unavailable to you. Want to Upgrade?

To: Jim Oravetz who wrote (4922)	1/23/2002 12:06:51 PM
From: Jim Oravetz	Read Replies (1) \| Respond to of 5390

A Turbulent Time For Infrastructure Semiconductors While 2001 was a year most semiconductor manufacturers would sooner rather forget; perhaps it was the most trying for those involved in cellular infrastructure. Not only was last year's slow down in handset growth a concern for infrastructure equipment and semiconductor manufacturers, but the lack of widespread enthusiasm for new cellular-based data services seems to be permeating throughout the industry. These new packet-based data services were to be cellular's "next big thing" and manufacturers have been counting on them to provide continued industry growth. While nobody is forecasting that cellular-based data services are dead, service providers have been quietly pushing-out deployment dates, and with each, their associated infrastructure purchases. In the U.S., in areas where 2.5G services have been deployed, they generally have been received with little fanfare. For most users, the speed improvements witnessed haven't matched the hype. Still, in 2001, it is forecast that worldwide base station semiconductor revenues will be flat as compared to 2000, which isn't as bad as many areas. In both previous years, base station semiconductors revenue will be an estimated $6.5 billion dollars. By 2005, if all goes well, this revenue figure should top $10 billion, but that's a big "if." For worldwide semiconductor revenue to continue to grow, new infrastructure deployment, as well as infrastructure upgrades, must continue at a steady pace. With rapid deployment of 3G not a sure thing, most focus is now on 2.5G. In addition, other infrastructure additions, like E911, seem to be moving slower than expected as well. By the end of 2002, the FCC had mandated that 100% of all new cellular subscribers have handsets that can be located within 300 meters, but it now appears that no carrier will actually make that deadline. Another setback for infrastructure vendors was the FCC's recent announcement saying that it will lift the spectrum cap in 2003. The spectrum cap, which limits a carrier to 45 MHz of cellular spectrum, was put in place to foster competition and prevent one carrier from acquiring a disproportionately large amount of spectrum. With the lifting of these caps, carriers would be free to merge with other carriers and combine their infrastructure resources. While this is good news for carriers, it's not so good for consumers or infrastructure manufacturers. Once the larger carriers acquire smaller ones, their need to purchase additional infrastructure is reduced, as is their available cash to buy such equipment. But all is not gloom in the world of cellular infrastructure, and there are some bright spots, especially outside of the U.S. Look for example at China, a country that already has more cellular subscribers than the U.S., and expected to have triple that number by 2005. Or India, with around 7 million subscribers today, forecast to have over 50 million by 2005, and still just a fraction of the total population. Closer to home is Mexico, forecast to have over twice the 21 million subscribers in 2005 that it does today. Even within the U.S., where new subscriber growth has slowed, infrastructure build-out is far from complete. The average length of a typical cell phone call continues to grow, as does the average usage per subscriber, prompting the need for more infrastructure purchases. In addition, carriers are coming under growing pressure to plug the coverage holes in their networks as they attempt to differentiate themselves on voice quality and coverage. Overall, infrastructure semiconductors are forecast to grow at a modest 11% yearly rate over next few years, and indications are that the worst for this industry might be over. While this growth rate is a bit disappointing when compared with the phenomenal growth of some past years, it should be a solid showing nevertheless. This Research Highlight is drawn from the Cahners In-Stat report, Infrastructure In Transition - Five Year Worldwide Cellular/PCS Macro BTS Semiconductor Forecast (#WT0109IN). instat.com