... consist of apples and oranges, some grapes and pears, an occasional banana and some nuts (not to be confused with nutters).
Jim,
<< Very interesting how the “analyst” community interprets things. >>
For a wireless watcher I find it hardly as interesting as the way message board participants interpret things, and the sources they use to aid in that interpretation.
To facilitate separating infra apples from handset oranges and chipset pears perhaps it would be helpful to provide some additional unedited clips not pieced together loosey goosey as Steve Goldstein did in his Market Pulse summary posted here, directly from the 4 page Prudential Ericsson update by Inder Singh.
Inder's complete unedited first bullet in the opening Highlights reads:
• We are upgrading Ericsson to Overweight from Underweight as we believe the GSM slowdown is now reflected in 1H05 estimates and the company could begin to benefit from a WCDMA uptick in 2H05. We have also increased estimates and our price target to $37 from $25.
The second bullet discusses CQ1 EPS and the 3rd and 4th expand on the 1st bullet:
• Both we and the company had been expecting the catch-up spending in GSM to abate, but it appears Ericsson's Expander turnkey GSM solution has helped drive new growth in emerging markets. We note that Dell O'ro was forecasting a 23% decline in GSM/WCDMA in its July forecast and has revised it to an 8% decline.
• Ericsson continues to increase its dominant GSM position as its market share increased to over 40% in 4Q04, up from the mid-30s in the beginning of 2004. We believe the pick-up in WCDMA spending will begin to increase in the second-half of 2005 and Ericsson should be in a good position given its number 1 position in WCDMA infrastructure with a market share of 39% that has increased from roughly 30% in 1Q04.
After further discussion of Ericsson's excellent Q1 financials which was heavily weighted towards infrastructure Inder goes on to say ...
>> Ericsson continues to increase its dominant GSM position as its market share increased to over 40% in 4Q04, up from the mid-30s in the beginning of 2004. In particular, ERICY has seen share gains in Europe (roughly 55% of GSM sales) as its market share is now in excess of 45%, up from around 40% at the beginning of 2004. Ericsson also continues to maintain high share in Asia Pacific (roughly 21% of GSM revenue) with over 30% share in 4Q04.
We believe the pick-up in WCDMA spending will begin to increase in the second-half of 2005 and into 2006 which will help offset the decline in GSM growth. This was supported by QCOM on their call last night where they commented that chipset orders doubled in the March quarter and expect to see sequential growth in all 2005 quarters. Qualcomm management mentioned that it believes it will begin providing Vodafone, Hutchinson and NTT-DoCoMo with its Qualcomm chipsets in WCDMA handsets. We believe that many carriers are holding back on marketing WCDMA while they wait for cheaper handsets. When the pick-up occurs, Ericsson should be in a good position given its number 1 position in WCDMA infrastructure with a market share of 39% that has increased from roughly 30% in 1Q04. Ericsson has a comfortable lead in first place as its closest competitor Nokia has market share of just over 20% with NEC and Siemens next in-line with just over 10% share. Geographically, Ericsson has roughly a 45% share in 4Q04 in Europe (roughly 78% of WCDMA revenue in 2004). Asia Pacific accounted for the remaining 22% of WCDMA revenue in 2004 and Ericsson’s share was in the mid 20’s at the end of 2004.
Pick-up in WCDMA could still weigh on margins. We continue to believe that GSM is less competitive than WCDMA and could provide some revenue support and the uptake of WCDMA and the Cingular contract in late 2005 could begin to add sales growth. However, we continue to believe that the decline in GSM will weigh on margins. Although Nokia presents formidable competition, Ericsson's incumbency with many large customers, including the emerging markets of India and China gives it an excellent foothold to at least maintain its share in those growing markets. <<
The report focuses almost entirely on Ericsson's wireless infrastructure business, which is there primary business. There is no mention whatsoever of Ericsson's GSM/3GSM chipset business in the report and just a casual reference to the handset JV with Sony which reported last week:
We remain slightly concerned about the near-term prospects for market share expansion at Sony/Ericsson, a JV of which Ericsson receives 50% of the profits.
It should be noted that Sony Ericsson (# 6 in handsets) is in the process of a badly needed product refresh of its GSM handset portfolio and expansion of its reasonably successful UMTS (WCDMA) product range. Nokia, Motorola, and Samsung, all took share from them in Q1, their ASP was down considerably, and margins were very small as a result although they were bouyed by the UMTS models.
<< I believe Dr. Jha also stated he expected the Q’s WCDMA chipset market share to significantly increase later this year, which could be viewed as a negative for ERICY. >>
Dr. Jha did, indeed state that as Singh noted. We can all hope that is the case.
That would of course have no negative impact whatsoever on Ericsson's primary business which contributes 80% of their revenue, and Ericsson's success is QUALCOMM's success as European, Asian, and US carriers expand coverage and capacity and go live. QUALCOMM powered handsets from Samsung, LG, and Toshiba, could certainly provide increased competition to the Sony Ericsson JV. The new models from LG could impact somewhat negatively on EMP who currently has supplied over 90% of LG's UMTS (WCDMA) chipsets, but ENP continues to supply them. While NEC plans to introduce QUALCOMM powered handsets to China test beds, NEC plans to use EMP for its European models. Overall the UMTS (WCDMA) market will expand so both EMP and QUALCOMM should benefit from that expansion and their OEMs will compete with Nokia who is rapidly gaining share in that market.
Excerpts here from Ericsson's Q1 Report with a link to that report:
Triple play, that is bringing together telephony, Internet and broadcast media, is in focus, especially among fixed network operators. Our evolved version of WCDMA with HSDPA is a key enabler within the mobile triple play market, offering mobile broadband with data rates similar to fixed broadband. HSDPA will be commercially available 2005 with volume shipments in 2006, and is the natural evolution of WCDMA. In parallel, our strong GSM development continues, especially in high growth markets where we expand our GSM footprint and pave the way for WCDMA. ... <snip> ... In the evolution from GSM to WCDMA most customers are deploying hybrid networks that combine GSM and WCDMA. The growth in the GSM/WCDMA track was approximately 11% in the quarter. Of radio access sales 42% were WCDMA/EDGE related.
I don't know if it is up yet but a live audio webcast of the press conference and conference call will be available at:
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