After Climbing the Hill, Wireless Investors Find the View Is Terrible
Cramer: Nokia Offers a Brutal Surprise
Nokia Puts Its Chips in the Third-Generation Basket
Wireless' Comeback Might Be a Bit Premature
Wall Street is whispering about wireless' juvenile delinquent -- handsets.
The handset market has been a nuisance for the past year, disappointing expectations for an upstanding holiday 2000 season, vandalizing 2001 estimates time after time and getting into locker-room brawls with
The big handset manufacturers set out new sales estimates for the year a month ago that were typically 10% lower. Based on recent checks, however, it's going to take some overachieving between now and then to make even those marks.
This spring, all three biggies lowered their estimates for industry-wide handset sales in 2001: Motorola to 425 million to 475 million, Ericsson to the 430 million to 480 million range, and
to 450 million to 500 million. You might be swayed to think those numbers are made in the shade by Ericsson's announcements at its Wednesday analyst meeting in New York, sticking with its estimates and upping the ante by saying 20 million to 30 million of those phones will be newer, data-capable GPRS phones.
When slacker Ericsson -- whose brightest move this year is to jettison its cash-draining handset business into a joint venture with
-- starts getting people excited about the handset business, can recovery be far off?
Sure it can.
Keep in mind the time frame for a comeback. According to
estimates, the industry started 2001 with 20 million to 30 million excess handsets out there. As of May, analysts believe 10 million of those have been put to good use, and the rest will be worked through by the end of the summer. So it's detention hall until the fourth quarter.
First Union Securities
analyst Mark Roberts put out a report in the past week about the handset supply chain, from chips to phones, backing up the conclusion that we're not on the rebound yet. Roberts concludes through surveillance of the channels for components and handsets that inventory is still at "record highs." He says that 11 weeks of handsets are clogging up phone carrier warehouses, while the potential inventory-draining demand is "still very weak and we're not seeing any improvement." Perhaps we're at the bottom, but Roberts says that it's not time to look up.
This jibes with the June bottom many chipmakers are expecting.
seconded that point of view as it related that its handset-component business was still idling at the mid-second quarter point, and warned revenues would fall short of expectations at $60 million to $65 million and 3 cents a share earnings.
CEO Steve Sharp asked the Street to peg its revenue and earnings guides at the same level for the third and fourth quarters, sensing no particular uptick on the horizon. (He may be overly conservative, given that would be the time frame for chip sales to go into holiday-season handsets, but who can blame him for wanting to surprise on the upside, rather than disappoint? If the fall doesn't pick up for component providers, you can start erasing those handset estimates.)
expects revenues to decline 20% in the second quarter while
cited "slower transition to next-generation phones" as a contributor to low manufacturing space utilization and declining margins. Earlier this week, chipmaker
predicted a nasty handset total of only 300 million to 350 million units by the end of 2001.
Not all the indicators are negative, however.
Thomas Weisel Partners'
Matt Finick complimented Nokia in a Tuesday note reaffirming that the Finnish honor student is not only selling its handsets, but is keeping its prices stable. Finick couldn't say the same for struggling, price-cutting Ericsson. When lamenting Triquint's misfortune, CEO Sharp said component buys among his customers were proportional to their handset market share, meaning big customer Nokia is still putting in orders. Ericsson got the short end of the compliment.
The wayward sector is still hurting. Assuming it hits bottom in the next quarter and stays flat, it will take a lot of extra credit to hit those mid-400 million handset estimates. First it's got to start passing some tests.
This report as orignially published contained an inaccuracy and was corrected May 25.