No matter how battered its handset division,
has consoled itself that it's second-to-none in the wireless infrastructure business.
But the Swedish company took a hit last week, losing out on the lion's share of a key infrastructure contract with
AT&T Wireless, the nation's third-largest wireless services provider, announced last Thursday that it reached
agreements with a number of equipment vendors and handset makers to build networks that incorporate the GSM (global system for mobile communications)/GPRS (general packet radio service) platform, which is widely used outside of the Americas.
With an order to provide base station systems, Ericsson netted 20% to 25% of the network infrastructure business AT&T handed out, estimates Matthew Hoffman, an analyst at
. (Hoffman rates Ericsson a strong buy and Nokia a buy, and his firm has done no underwriting for either company.)
But that's less than the company's leading market share of more than 30% of the mobile infrastructure market, as well as its dependence on the business for the majority of its revenue, 54% in the third quarter. The figure is also noteworthy because Ericsson has provided the majority -- 50% to 60% -- of AT&T Wireless' equipment in the past, according to Johan Carlstrom, an analyst at Swedish investment bank
. (Carlstrom rates Ericsson and Nokia strong buys, and his firm hasn't done underwriting for either company.)
"This is a disappointment for the network infrastructure division," says Carlstrom.
A spokesman for Ericsson says that because AT&T Wireless asked its vendors not to disclose the terms of the contracts, he can't confirm the figures or comment on them.
Meanwhile, Nokia landed a new customer and garnered anywhere from 35% to 53% of the business, Carlstrom calculates. Adds Hoffman, "This is a significant infrastructure deal for Nokia. It has very little presence in the U.S."
But Hoffman also says Ericsson did well in the deal. "Is this as much market share as it's had with AT&T in the past? No. But is it more than expected? Yes. This is monetarily significant for Ericsson," Hoffman says. He adds that Ericsson didn't get as much market share as before because it did not yield significantly on pricing. However, it got more than expected because it offered an end-to-end range of equipment, which included handsets. Indeed, Ericsson got 30% of AT&T's handset order.
One hedge fund manager agrees, saying it's only important that Ericsson was included in the deal. "The contracts reflect a vendor's long-term strategic positioning goals," he says. "They will sacrifice profitability to gain experience and to have reference networks in place to use and point to later on." (He has no position in Ericsson.)
But the fact remains that the strongest part of Ericsson's business suddenly looks a little weaker.