This story was originally published on RealMoney on June 28 at 7:59 a.m. EDT.
Since I left
in May 2003, the mobile-telecom sector has (possibly coincidentally) executed a dazzling comeback. The moment I stopped writing about the sector, it executed a full Lazarus with a double twist.
Many of the most reviled handset, network and component stocks have staged strong rebounds as network capex has bounced back, and the global handset market has posted double-digit growth in 2004 and in the first quarter of 2005. Ever since the dismal spring of 2003, the mobile-phone companies have made a habit of beating low expectations.
We are now at a fascinating juncture: Does the revitalized phone market still have a couple of surprises in its sleeve? How rapidly will the growth slow down during the 2005, and how will investors react this time?
What makes the state of the mobile-phone market so fascinating in 2005 is that nobody really understands the grand industry cycle. Plenty claim they do, but my opening gambit upon my return to
is to confess that the baroque complexity of the handset cycle can be confounding and that for the time being, we'll just have to monitor key trends in order to try to figure out how the crucial year-end sales season will shape up. It's a little early to call Christmas.
This is not as much fun as kicking off a column series with proclamations of adamant certainty, but I've seen enough friends in the telecom biz lose their jobs to realize it's better to be a live weasel than a dead lion.
The main theme of 2005 will no doubt be the shape of the long cycle of the mobile-phone market. This is an enigma caused by the fact that there is only one prior downturn in the handset market history -- and that coincided with the overall tech depression of 2001.
We have clearly passed the peak of the post-2001 rebound, but at the moment there is a sharp debate about how rapidly the volume growth rate will decline during this year. There is virtually no disagreement about the expectation that the growth rate will come down. The disagreement is mainly about whether the year-on-year volume growth in 2005 will be closer to 8% or 15%.
This may sound trivial, but it is anything but. The outcome will give us important clues about the depth of consumer appetite for fancy hybrid phones packing new audio-visual features; the product class that will define the future of mobile operators. This year will also tell us much about the limits of growth in developing markets. Can the prodigious growth in China, Latin America and India continue without major hiccups after the new wave of low-end phones triggered a new growth spurt in low-income rural markets in 2004?
Will it be 8% or 15% global volume growth in 2005?
Mobile telecom investors are likely to extrapolate, overanalyze and hyperventilate about the outcome in that particularly spastic way they are prone to. Here's the catch: Fourth-quarter sales might well be close to 35% to 40% of annual sales volume, as the key launches of
, Sony Ericsson and
may be making this year even more back-loaded than usual.
The always-crucial Christmas quarter is particularly big in 2005, as the big guns in the nascent music phone segment and some major W-CDMA pushes seem to converge in a massive, post-October promotional orgy. We're likely facing a cliffhanger year regardless of what happens during the third quarter. Tracking phone launches, shipment schedules and operator promotions this autumn is going to be very important in order to gauge the run-up to the fourth quarter.
At the same time, we'll keep Indian and Chinese subscriber statistics under intense scrutiny as bellwethers of developing market trends. We're probably facing plenty of drama in the $8 billion to $10 billion
, which might arrive by the end of 2005 ... or we might face another major delay. The bidding competition involving two Western 3G standards and the mysterious Chinese TD-SCDMA alternative is going to be a clash of technologies, politics and trade issues rife with speculation and intrigue.
After two years of mostly positive surprises for key mobile companies, the next 12 months definitely have the potential for high volatility, particularly since consensus expectations now foresee no real turmoil. Both Chinese market development and the upgrade sales scene in Western countries are more problematic than the first quarter's market strength may indicate. These are topics I'll be covering in coming weeks.
We are likely to also witness an epic sector clash of mobile hardware vendors (
, Motorola, Nokia,
) vs. operators with high exposure to affluent Western mobile markets (
). The influx of new, technologically advanced phones seems to have some surprising consequences to both mobile hardware and service markets.
As a personal note, I must thank warmly the
crowd for making my transition from Helsinki to New York so painless over the past two years. I fully expected my move from Finland to become a professional debacle and a personal tragedy. Instead, I've had the time of my life.
readers have taken me to Yankee Stadium to learn the rules of baseball. They have told me where to buy Scandinavian cheese and size 14 shoes and given accurate tips on where to find a decent rental above the 30th floor (living high being a fixation for many Nordic yokels when they arrive to Manhattan). One reader offered me a place to stay during the great blackout of 2003 when I faced a climb to that 33rd floor studio. Another fixed me up for a blind date with a stunning Southern girl -- and another helped me find a nice wedding caterer half a year later. I feel like I have built a life in America with the help of the
I realize that this can be spun two ways. Either it sounds like a touching New York story, or it's a chronicle of a 240-pound alien parasite latching on to well-meaning email correspondents to exploit them ruthlessly. Whether the story has been comedy or horror or some mixture of both, I've had a blast, and it's a privilege to return to
and the community of readers I have missed sorely since the spring of 2003.
Tero Kuittinen is a Senior Product Specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. At the time of publication, Kuittinen had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;
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