I went back through Goldman's comments over the last 6 months or so to get their take on how UMTS network market share is ebbing and flowing. It does appear Nortel is gaining share, though nothing overwhelming.
Coot
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11/17/03
MORE 3G CONTRACTS WILL BE RE-BID, NORTEL WILL LIKELY GAIN SHARE AS A RESULT.
3G contracts do not appear to be set in stone with very competitive bidding taking place
for 2nd supply contracts. While we expect these re-bids to lead to some share shift among the
leading 3G vendors (Ericsson, Nokia, Nortel and Siemens/NEC), with Nortel being a net gainer,
we do not expect the movements to be dramatic or to drastically change the landscape of the
leading vendors.
12/3/03
Nortel is proving it is a share gainer in the flat to no growth telecom equipment sector
with yesterday's contract announcement with Vodafone. Nortel is partially displacing
Ericsson, Vodafone's incumbent wireless equipment vendor in the United Kingdom.
Importantly, this win proves Nortel is a viable long-term player in the $3.4 billion, 40%
growth 3G market. It offers potential upside to our below consensus sales forecast of 3%
and 6% growth in 2004 and 2005. We would look for more contract wins on this front.
Beyond this top-line story, we continue to believe Nortel's gross margins will prove
stronger than street expectations and reiterate our out of consensus 2005 EPS estimate of
$0.22. We maintain our Outperform rating within a Neutral coverage view.
Vodafone announced that it has appointed Nortel to supply radio access infrastructure to
its U.K. unit - the equipment will be used for the commercial rollout of 3G services in
2004. We estimate that the total contract value is in the neighborhood of $100-$120M
($50-$60 per year for 2 years). Ericsson remains Vodafone's primary wireless
infrastructure vendor and we do not believe that the addition of Nortel as a secondary
supplier will meaningfully impact Ericsson.
1/21/04
If a Cingular/AT&T Wireless merger were to take place, we estimate that the revenue
impact to the primary equipment vendors, namely NOK (OP/N), ERICY ( IL/N), and NT
(OP/N), would be approx. 1% of 2004 sales. The greater risk in the near term is for a stall
in purchasing decisions as the merged entity determines coverage plans. That being said,
it is important to keep in mind that most of the build-outs happening in the US are for
capacity ( not just coverage) and a combined Cingular/AT&T Wireless would not reduce
capacity needs, only coverage needs. Further, in the longer term, the combined Company
would likely benefit if it decided to accelerate its 3G rollout which, in turn, would be a
positive catalyst for vendors such as ERICY, NOK and NT. This, in our view, is the more
important issue to watch.
3 KEY POINTS:
#1 PRIMARY EQUIPMENT SUPPLIERS ARE NOK, ERICY & NT. AT&T has
budgeted approximately $3bn for capex spend in 2004. Its primary equipment suppliers
are: Nokia (60% of radio); Ericsson (40% of radio) for base stations; and Nortel for the
core of the network (100% share). Cingular, with a 2004 capex budget of approximately
$3.6bn capex, uses Nokia, Ericsson, and Siemens for the radio portion of the network and
Nortel and Ericsson for the core.
#2 COMBINED CAPEX LIKELY TO BE REDUCED BY 10%. In our view, a combined
Cingular/AT&T Wireless capex budget would decrease by approximately 10%, or
$660M (based on a combined budget of $6.6B). However, most of the build- outs
happening in the US are for capacity (not just coverage) and a combined Cingular/
AT&T Wireless would not reduce their capacity needs ( only their coverage needs). As a
result, we would expect a merger to put purchases of network equipment on hold for
approximately 6-9 months as the merged entity finalizes its coverage plans and then we
would likely see a 10% ($660M) capex reduction. Longer term, however, the combined
Company would likely benefit if it decided to accelerate its 3G rollout which, in turn,
would be a positive catalyst for vendors such as ERICY, NOK and NT. This, in our view,
is the more important issue to watch.
#3 EXPECTED VENDOR IMPACT IS LESS THAN 1% OF 2004 SALES FOR NOK,
ERICY & NT. We estimate that Nokia and Ericsson's share of the $660M capex
reduction would each be around 35%, or $230mn with Nortel's shares being
approximately 15%, or $99M. Bottomline, the impact of our expected $660M reduction
in capex would be approx. 1% of each vendors 2004 expected sales.
3/1/04
NORTEL (OP/N): WIRELESS SHARE GAIN THESIS REMAINS INTACT
Our meetings in Cannes supported our belief that Nortel will be a key beneficiary of confirmed 3G
rollouts and the uptake of mobile data over the next 12-18 months. We would continue to be buyers
of the shares as we believe Nortel's gross margins will prove stronger than street expectations and
we reiterate our out of consensus 2005 EPS estimate of $0.22.
We expect the U.S. and China to be the primary catalysts for Nortel 3G share gains, with
incremental 3G share gains likely to continue in Europe.
- In the U.S, we expect NT to benefit from: 1) EV-DO share gains from Motorola at Verizon; and
2) a potential 3G contract win at AWE/Cingular (NT is currently supplying the 3G equipment for 2
out of AWE's 4 city rollout).
- While our research in Cannes indicated that we may see a slight slip in the timing of 3G licence
assignments in China (we now expect early 2005 vs. late 2004), we believe that Nortel is well
positioned to benefit from the eventual 3G build, which we expect in mid-2005.
- In Europe, we regard Nortel's opportunity as more of a gradual build vs. a contract avalanche. We expect Nortel's share to benefit from:
1) gaining second supplier status in what are currently single vendor networks, particularly as NT leverages its CDMA expertise and FX advantage; and
2) expansion contracts in secondary markets. |
