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

To: Eric L who wrote (4980)	4/2/2002 12:40:09 PM
From: Jim Oravetz	Read Replies (2) \| Respond to of 5390

Makers of Wireless-Network Gear Rely on Telecoms' Sporadic Orders By DAVID PRINGLE Staff Reporter of THE WALL STREET JOURNAL Are makers of mobile-phone network equipment still too optimistic about the outlook for orders? The recent omens for them aren't brilliant. The slowdown in demand for such equipment is spreading to China, until recently one of the few bright spots for suppliers. Now that most wealthy Chinese have a handset, the two biggest mobile-phone operators in China are holding down costs so they can cut subscription rates and attract less-affluent customers. Last week, China Unicom, the second-largest operator in China, said it will slash capital spending on its mobile-phone networks to 7.88 billion yuan ($951.3 million or €1.09 billion) in 2002 from 20.78 billion yuan in 2001. The previous week, China Mobile, the world's largest mobile-phone operator, said its capital spending in 2002 and 2003 will total $8.8 billion (€10.1 billion), or 20% less than originally planned. Ericsson, Nokia, Motorola and Siemens are among the leading suppliers of wireless equipment to China. On top of the slowdown in China, equipment suppliers are faced with the prospect of a shrinking market in Europe, as heavily indebted mobile-phone operators look to merge their operations and cut costs. Last week, Sonera, based in Finland, agreed to be acquired by Sweden's Telia, while France Telecom said that it would like to see Mobilcom, a German operator in which it owns a minority stake, merge with another operator in the German market. While consolidation is probably necessary for the long-term health of the mobile-phone industry, it is likely to lead to further cutbacks in capital spending in the short term. The slowdown in China and Europe is already having an impact. Nokia said recently that weaker-than-expected sales of network equipment in Europe and China could lead to a 25% drop in first-quarter sales at its networks division, compared with a year earlier. The warning prompted some analysts to question whether the Finnish company can hit its target of increasing sales in its networks division by 15% this year. "The first half is just not strong enough," says Richard Windsor, an analyst at Nomura in London. Assuming that the market doesn't begin to recover until the second half, Mr. Windsor estimates the networks division will need to post sales growth of 64% in the fourth quarter to achieve 10% growth for the whole of 2002. The networks division accounted for about one-fourth Nokia's sales last year. Nokia's main rival in the networks market, Ericsson, is expecting sales in its mobile-systems division to fall by as much as 10% this year. But Nokia officials point out that their company's revenues in the second half will be lifted by sales of third-generation wireless equipment. Although Nokia is shipping 3G equipment now, it will recognize the revenue from those shipments only in the second half. Some analysts agree that early sales of 3G equipment, which have much greater capacity than current second-generation systems, will shore up the market. Lars Soederfjaell, an analyst at Handelsbanken, says 15 new mobile-phone operators around Europe don't have second-generation networks and he expects those companies to spend between €200 million and €300 million each this year on 3G equipment. Mr. Soederfjaell is also confident that Chinese operators eventually will be forced to step up their spending on wireless networks again. About 10% of the Chinese population has a mobile phone and Mr. Soederfjaell says that between 30% and 40% could afford one. But Chinese operators are already having to cut their rates to attract new subscribers. China Unicom said Wednesday that the average revenue it earns from each subscriber is shrinking as it signs up more customers. Sophia Tso, a spokeswoman for the Hong Kong-listed company, said the 2002 budget will increase the capacity of its GSM, or general system for mobile communications, network by five million subscribers, down from a capacity increase of 18 million in 2001. However, Ms. Tso said Unicom still has enough headroom to sign up an additional 15 million GSM subscribers this year in addition to the 27 million subscribers it served at the end of 2001. Unicom's main suppliers of GSM equipment are Motorola, Siemens, Ericsson, Nortel Networks and Nokia, Ms. Tso said. Unicom also indicated last week that its parent company, China United Telecommunications, might extend its CDMA, or code-division multiple access, mobile-phone network at a slower rate than originally planned. Some analysts say the latest round of capital-spending cuts are designed to please investors, who are increasingly focused on how much cash operators are generating rather than on their growth prospects. As long as investors continue to reward such frugality, the leading equipment makers will have a tough time pleasing their own shareholders.