Wireless gloom continues

January 25, 2002 Posted: 0735 GMT

CNN's Abid Ali

LONDON (CNN) -- The first six months of this year do not look pretty for the mobile phone industry.

That much became apparent this week after three of the biggest players – Nokia, Motorola and Ericsson – delivered performance figures for the fourth quarter and gazed into their crystal balls to predict the future.

While Ericsson's and Motorola's earnings were covered in red ink, Nokia staked its claim to be the only profitable mobile phone manufacture in the world. But its fourth-quarter net income dived 63 percent to 450 million ($395 million).

Analysts are now betting on Nokia over the next six months, after all three said sales would decline but demand should pickup by the second-half of 2002. 

"For the next two quarters or so, the company to pay particular attention to is Nokia,"  Richard Windsor, an analyst at Nomura International, told CNN. "The main reason for that is with the continuing decline in the infrastructure market, Nokia will continue to post profits simply because it has a fairly large operating margin it can rely on."

	Nokia may have to trim their forecasts as they seem ambitious in a weak  economic environment
	Susan Anthony Credit Lyonnais

Mobile phone makers have been hit hard by an economic slowdown and recession in many economies, like Japan, Germany and the U.S. At the same time, many telecom operators have cancelled orders for new infrastructure, choosing to control costs and cut debt.

Finland's Nokia, Sweden's Ericsson and U.S.-based Motorola expect business to improve as consumers and carriers warm to the next, third generation of fast mobile data and voice communications (3G), due online in late 2002.

But, consumers have delayed purchases of new phones while they await more attractive services that give quick access to the Internet.

Nokia, which said it increased its market share in mobile phones to about 37 percent in 2001 from 32 percent in 2000, expects total market sales in 2002 to grow between 10 and 15 percent to 420-440 million units. This was roughly in line with the 420 million plus figure forecast by Motorola.

But Windsor said the companies faced an uphill struggle as many consumers were not convinced by the prospect of new technology.

"The consumer does not know if he needs 3G or not," he said. Windsor argues it is not enough to advertise new handsets with new technology but the mobile phones need to be sold that can add value to the consumer."

"The problem we have in the short term is there are no services to stimulate demand."

Nokia predicts first-quarter sales will be  6 to 10 percent lower than the same period in 2001. However, it said sales should pick up during the year and grow by 25 to 35 percent by the fourth quarter.

But some analysts have questioned the company's optimism for 2002 growth.

"Nokia may have to trim their forecasts as they seem ambitious in a weak  economic environment," Susan Anthony, an analyst at Credit Lyonnais, told Reuters.

	The consumer does not know if he needs 3G or not. The problem we have in the short term is there are not any services to stimulate (wireless) demand.
	Richard Windsor Nomura Int'l

As for Ericsson, it spent the last year shedding more than a fifth of its workforce and driving its mobile phone business into a joint venture with Japan's Sony, the world's second biggest consumer electronics company. Ericsson hoped to focus on its infrastructure business, the prospects are a lot more gloomy.

"We estimate Ericsson's margins (the difference between sales and costs) are not sufficient for the company to be able to withstand further heavy falls into the first quarter which is what we expect, and therefore there's more losses coming from Ericsson in the first quarter, said Windsor.

The Swedish company, which made a forth quarter loss of 3.5 billion Swedish crowns ($330 million), expects sales in the first three months to fall about 40 billion crowns, down more than 31 percent from the fourth quarter.

It also expects a pretax loss similar to the 4.9 billion crowns in the first quarter of 2001.

Ericsson's stock fell 4.8 percent to 47.30 crowns in late afternoon trading on Friday.

"It's definitely not out of the woods yet in terms of mobile infrastructure," said Windsor. "However, we are relatively optimistic overall for 2002. We are expecting an overall 7 percent growth in the infrastructure market, which means that perhaps sometime in quarter 1 or 2 that Ericsson will be in a position to outperform forecasts simply because it has the greatest exposure and is the world leader in its field."

Motorola, which logged a fourth-quarter operating loss of 4 cents per share, a penny narrower than analysts generally had expected, said it was likely to continue to operate in the red during the first half of 2002, with a return to profitability in the second half, barring any unforeseen circumstances.