B.B.A., Loyola University of Chicago. Cena has covered the wireless, wireline and data communications sectors of telecommunications equipment for Salomon Smith Barney since 1998. Prior affiliations include Bear Stearns, Lehman Brothers, Dain Bosworth and William K. Woodruff & Co.
Industry Outlook and Style
Alex Cena sees substantial growth prospects in the wireless equipment market now that third-generation wireless networks have arrived on the scene. Unlike second-generation networks, which optimized voice communications, this newest mobile-phone technology improves the efficiency of data traffic. (The technology behind these 3G networks is code division multiple access, commonly called CDMA.)
Cena predicts that revenues of wireless equipment manufacturers will ramp up at a 25% to 30% annual rate this year and next as wireless telecom carriers in the U.S. prove to a cell phone-happy public that they offer a huge competitive advantage over Internet service providers like
Just as the traditional method of accessing the Internet -- by personal computer -- has spurred massive expansion of
telecom networks' data transmission businesses over the last several years, the latest way to access the Internet -- via mobile phone -- has sent
networks mushrooming. "There are four times as many mobile phones being sold today as there are PCs," notes the analyst. "And, unlike a PC, your mobile phone is with you any time, anywhere, so it's the ideal method of reaching the Internet. That's why wireless carriers have a huge competitive advantage over ISPs in data services. And it's why the wireless equipment business continues to expand."
To illustrate how a traveler in the U.S. might use his mobile phone for Internet access, Cena gives a hypothetical example: "Let's say you're in New York City and you want the
guide. The mobile-phone company pinpoints where you are within a couple of hundred yards, so it knows to give you only the New York restaurant listing. Or if you're stuck at O'Hare airport, the mobile-phone carrier will know which of Chicago's two airports you're in, where the closest hotels are and whether they have rooms available." In other words, sums up Cena, "you're getting the exact content you need for the location you're in -- something you can't get from a wireline Internet provider."
The European launch of 3G networks could send sales of wireless equipment soaring well beyond the 30% annual growth rate Cena envisions for 2000 and 2001. "That spike should start in 2002 and last a good 18 to 24 months. In that period, I can see some companies' revenues growing 50% a year," the analyst asserts.
Which of the wireless equipment companies will be the biggest beneficiaries of the coming European rollout? To Cena, it's a toss-up between Finland's
. "They'll both win the lion's share of the contracts because they both have home court advantage, they've both been focusing on this market earlier than their rivals and they have the largest installed base in Europe."
Curiously, Cena believes both companies will lose a bit of market share in the 3G launch. But, at the same time, he promises that neither Nokia nor Ericsson will feel the loss. "Even if Nokia's market share were to fall from 40% to 30%, we're still talking about contract awards that will be three times the size of their existing second-generation business." The analyst anticipates that Ericsson's 2000 revenue will outpace 1999 by 28%. For Nokia he projects a 47% increase.
Cena has turned more cautious on some of the other stocks in his universe. In May, for instance, he downgraded
from a buy to an outperform because of worries that the three-part scenario he had projected for the company wasn't such a sure thing after all -- namely, continued strong infrastructure sales, potential to win 3G contracts early in the race and margin improvement in mobile phones in the second half of the year. "I still think it's a good stock to accumulate over time, even if no longer a table-pounder," observes the analyst.
is another stock Cena downgraded this year -- he lowered his opinion to neutral on Jan. 7, when shares were at $69. Among other woes, Lucent failed to meet its first-quarter earnings projections, and earnings disappointments dogged the company in the second quarter as well. The stock lately trades in the low 40s.
By contrast, on March 30 the Salomon Smith Barney analyst went back to a buy on
, just two months after having downgraded the company because of rich valuations. (Qualcomm had a staggering 26-fold ascent in 1999.) This counter-consensus call has not yet paid off -- the stock has plunged more than 60% since then, largely on fears of the impact of ending mobile-phone subsidies in Korea -- but Cena remains unperturbed. "We continue to believe the long-term outlook on Qualcomm remains positive," he says, citing a rebound in the company's 3G orders and licensing deals as one reason for his optimism. (Salomon Smith Barney has no investment banking deals with any of the companies mentioned in this story.)
Favorite stock for next 12 months:
"I'm giving the nod to Ericsson over Nokia, because Nokia had a little stumble recently where, instead of beating estimates, they only hit them for the June quarter, so I lowered my rating short-term to outperform. Ericsson remains a buy because most of its wireless business is from infrastructure equipment, where the company is poised to do very well given its home court advantage, early focus on wireless data and 3G and the industry¿s largest installed base."
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