PRESS RELEASE:Fitch:Nokia Venture,Solution to CDMA Dilemma
The following is a press release from Fitch Ratings: Fitch: Nokia Sanyo Joint Venture Offers Solution to Nokia's CDMA Dilemma
Fitch Ratings-London-15 February 2006: Fitch Ratings said today that the proposed joint venture ("jv") combining the respective code-division multiple access ("CDMA") businesses of Finland's Nokia Corporation ("Nokia") with that of Japan's Sanyo Electric Co ("Sanyo") could offer benefits to both companies. In particular the proposed venture offers Nokia the opportunity of significantly boosting its share of a market where its presence has been relatively weak and where its strategy has been somewhat unclear.
Nokia is currently rated Long-term IDR 'A+' with a Negative Outlook. Fitch comments that it is too early to assess the potential credit impact of the development from a rating perspective but takes the view that the jv could over time ease some pressure on Nokia's R&D and add positively to earnings. With scale an increasingly important factor in technology markets, Fitch expects the venture to bring important R&D synergies for Nokia, while offering the venture the potential to exploit Nokia's extensive handset distribution relationships.
While as a wireless technology CDMA is smaller in scale than the dominant GSM (global system for mobile) standard, it is nevertheless estimated to account for around 20% of global sales. In a total market of between 780-810 million units in 2005, CDMA volumes of around 150-160 million handsets form a significant market opportunity, with this volume expected to grow in 2006. Nokia's focus on its core strengths in the GSM family of technologies - where it is the undisputed global market leader - has arguably lead to a lower emphasis in a technology with a significant prevalence in the US, Latin America and parts of Asia. The combination offers a good geographic fit, as well as bringing together Nokia's strengths in the entry level-mid tier with Sanyo's presence in the mid-high end category.
"This could be a good solution to a market where Nokia's position has been uncharacteristically low" said Stuart Reid, a Director in Fitch's European TMT group. "The joint venture approach has worked well for SonyEricsson. A successful combination of Nokia and Sanyo's CDMA businesses would form a strong player in the technology, with the venture claiming the number two slot in a market currently lead by South Korea's Samsung."
While the SonyEricsson joint venture was regarded with some circumspection when it was originally formed, it now achieves good levels of profitability and consistently vies for the market number four position. Fitch's believes this success could be replicated by the Nokia Sanyo venture, with Nokia's traditional CDMA strengths in Latin America and more recently in North America, complementing Sanyo's presence in Japan. Nokia currently has a strong CDMA market share in Brazil, India and China but has no representation in Japan, while Sanyo has only limited exposure to the North American carriers. The venture also offers a good technological fit, with Nokia's presence in the lower-end of the market complementing Sanyo's mid-high tier position.
While handset vendors tend not to break out sales by technology, Nokia is estimated to be the market number three in CDMA sales, while Sanyo's focus on its home market adds a strong Japanese complement but limited exposure elsewhere. Combined the venture is expected to have more than 20% of the CDMA market, which, as noted above, will rank it second in the market behind global CDMA leader Samsung.
(END) Dow Jones Newswires
02-15-06 1152ET
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