Consumer Uncertainty Weighs on Wireless Sector After a Week of Warnings
When trading resumes, wireless investors will be asking how well mobile-telecom sector stocks, lately besieged by warnings, can carry the burden of economic uncertainty after the terrorist attacks on American soil.
The biggest potential impact of Tuesday's events on the long-term financial well-being of the wireless sector is a disruption of the recovery in U.S. equipment spending. During 2001 Europe has continued to sink into a spending decline, followed by economically ailing Latin America and even some recent speculation that the Asian market, particularly in China, could be slowing spending.
"The U.S. market is the only market starting to see stability and stable demand. Not accelerating demand, but stable demand," says Wojtek Uzdelewicz of Bear Stearns, which has done banking for Motorola (MOT). But he adds that the U.S. market isn't the clincher for a wireless recovery. "Europe is the most important market. Handsets there took a downturn much earlier, last year at this time. Now the inventory issues have been worked though, but there's been no pickup in demand." Uzdelewicz expects slightly lower handset shipments from the second quarter to the third and a much weaker infrastructure market.
September has been a culmination of hard times for the wireless infrastructure and mobile-phone markets, following a steady stream of troubling news in the past two weeks. Kicking off a week of warnings on Sept. 4,
(ERICY) cautioned that it would not see growth in its mobile systems business in the third or fourth quarters, a pessimism it extended through the whole of 2002. Motorola followed with a second-quarter revenue
What Will the Consumer Do?Weighing heavily in the debate is the chance that consumer spending will retreat under the threat of a national crisis. In the two-pronged wireless equipment business, such a reaction would have minimal short-term impact on the base station equipment business pitched to large wireless carrier customers. Even if U.S. consumers swore off buying the mobile phones they'd been planning to buy, the global market for handsets is by no means dominated by U.S. spenders. A prolonged purchasing slowdown could cause carriers to cut back on network expansion in 2002, but that would take more than a short-term decline. But the most pressing concern is the months-old delay of the data services accompanying the anticipated rollout of general packet radio service (GPRS), a half-step between current GSM and third-generation wireless networks. Consumers' willingness to pay for speedier email and short-messaging services on their mobile phones still remains to be proven. GPRS's popularity will go a long way toward reassuring the investment community that the money needed to build third-generation networks will be well spent. Nokia expects to deliver GPRS phones shortly, but its industry-wide projection for GPRS sales in 2001 is 10 million phones, a sliver of the 405-million phone shipment estimates made at the end of the second quarter. For those concerned about U.S. wireless carriers, both Nextel (NXTL) and Sprint PCS (FON) enjoyed
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