Human nature is what it is: After every tragedy, there is speculation about which sectors might benefit from the events. I can't muster much moral indignation about this because that's how markets work. However, when the reasoning behind the concepts is shaky, it's important to separate trading decisions from investment decisions.
Clearly the call volumes of American telecom operators have spiked recently. Trans-Atlantic volumes have spiked even higher -- especially London-New York volume. American mobile-phone sales have also evidently increased after the news coverage of recent rescue efforts in New York.
Remembering the World Before
These news items have been enough to create relative strength in the mobile telecom sector. However, this would be a good moment to keep in mind what happened immediately before last Tuesday's tragedy. The warnings and comments from
clearly indicated that, globally, mobile operators have cut down on capital-expenditure spending far more drastically than even the bears expected last summer. I'm reading into Motorola's comments a tacit admission that the infrastructure unit of the company is going to slide into a loss for the first time in living memory. Ericsson's comments can be construed to imply the same. Nokia's comments implied that the network unit, while evidently becoming the last in the entire industry to remain profitable, will see sales decline.
These trends indicate how hard the global slowdown has hit the mobile-infrastructure sector. Neither a rebuilding effort in Manhattan nor a possible American operator capacity expansion is going to have a big effect on that. The key here will remain how well consumers respond to new models incorporating packet-switched data, sophisticated displays and software improvements such as Java and xHTML support. Only increased mobile-data usage will bail out this industry -- and we can't start judging the likelihood of that until the first quarter of 2002 or so.
The Key to Growth
Have investors really digested the downside regarding the third quarter -- and likely the fourth -- of this year? Have they grasped how bleak the numbers are going to be before they start speculating about a rebound? The key to the sector lies in Latin America and Asia -- and there is no way of knowing how the current turmoil will impact these growth engines this fall and winter.
Nothing's wrong with speculation: It's the engine of capitalism. But let's keep in mind where the fundamentals were before last week. Nokia's Monday rally was not an industry indicator; it was related to misjudgments that most investors made about the company's specific situation regarding the product cycle. Most observers have written off Nokia 9210 as too expensive and big to count as a volume model. But evidently this color-display model has broken sales expectations, probably racking up 300,000 unit volumes during the third quarter and heading for a half a million units for the Christmas quarter. Because the unsubsidized price has topped $1,100 in some markets and the production costs are lower than most analysts think, the impact on phone margins is outsized and something most people have totally ignored.
But this specific surprise -- which was implied in Nokia's comments last week and does bode well for future sales of cheaper color phones -- doesn't really have a much wider impact on the sector.
The last thing this sector needs is a cynical pump-and-dump cycle just before the third-quarter numbers come out. But it looks like we're getting just that -- right now.
Tero Kuittinen wears several hats: Vice-President of Wireless Communications at investment firm Halsey Advisory and Management, (New York); Technology Advisor to Opstock Investment Banking (Helsinki), Technology Advisor to a U.S.-based private equity firm, Wharton Equity Partners (New York), and Senior Strategist to a mobile entertainment start-up, SpringToys (Helsinki). At time of publication, Halsey was long Nokia and Ericsson, 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 and invites you to send it to