NEW YORK-Established and new entrants to the wireless handset manufacturing sector are sitting pretty on the crest of a wave of growing worldwide demand, said participants in the NatWest Securities Corp. “Global Mobile Handset Conference.”
Handset sales could reach 250 million units in 2000 compared to projections that 100 million will be sold this year, NatWest executives said.
Telecommunications market liberalization, technology advances and innovative marketing strategies are bringing new customers and new carrier and manufacturer competitors into the wireless arena.
Jeffrey Hines, wireless telecommunications analyst for NatWest, said the investment bank’s projections for the dramatic growth in wireless telecommunications use and resulting purchase of phones hinge on two critical factors.
“There must be very long battery life and very small handsets so that cellular and (personal communications services) become more like pagers, carried everywhere, on all the time,” he said. “That’s when cellular/PCS will become a landline replacement.”
James P. Caile, vice president of marketing for the Motorola Inc.’s Cellular Group, said the wireless industry has grown faster than the company anticipated.
“Worldwide, there were 119 million cellular/PCS subscribers as of Sept. 30, 1996, and 178 million at the end of September (1997). A conservative consensus estimate is that there will be 400 million by 2000,” Caile said.
“You have to be careful with these projections because there are lots of suits by someone who earned $7 per share but would have earned $40 if they’d waited three more months.”
Of additional and significant importance to the growing marketplace for wireless handsets is the replacement of older terminals by existing customers. Collectively, purchases of new wireless phones by existing customers will equal about 75 percent of the amount bought by new subscribers at the end of this year and about two-thirds of the number bought by new customers in 2000, according to NatWest projections.
In terms of worldwide unit sales for all types of wireless technologies, Motorola, Nokia Corp. and Ericsson Inc. will retain through 1999 their first-, second- and third-place status, respectively, said Ian McLeod, director of European Telecoms research for NatWest.
Nokia and Ericsson will close somewhat the gap between their volumes and those of Motorola’s, but all three companies will experience significant demand growth.
Although handset prices will have firmed somewhat by 1999, manufacturers face significant declines in revenues per unit sold over time.
“There is a very bright future to look forward to,” McLeod said. “The biggest challenge facing manufacturers is to build and maintain value in the marketplace.”
Carlton Peyton, national sales director for Samsung Americas, said that wholesale prices of its Code Division Multiple Access handsets in the United States would drop to $150 in the United States in 1999 from $350 this year. But, more importantly, Samsung will continue to make a good profit on these sales despite the price declines, he said.
“There will be multiple winners,” Peyton said. “It’s a very large market, and there is room for all of us to play.”
Over the next several years, sales of wireless handsets for Global System for Mobile communications will account for 70 percent of the total worldwide marketplace, McLeod said.
Jeffrey K. Belk, vice president of marketing for Qualcomm Inc.’s subscriber products business, said a key indicator of how that percentage might change is this: “There are over 25 (manufacturing) licensees for CDMA, more than the number of manufacturers that are members of the GSM MoU (Memorandum of Understanding).”
Larry Paulson, general manager of business development for Nokia Mobile Phones Americas, said there isn’t likely to be a single global standard anytime soon. “The Americas, Asia-Pacific and Europe-Africa will be equal growth areas in 2000,” he said. “Being active in all important technologies is important to maintain global dominance.”
Clint McClellan, wireless industry analyst for Dataquest, concurred with Paulson that successful handset manufacturers will need to offer “a broad portfolio of standards-GSM and CDMA, at least.
“Ericsson doesn’t have CDMA yet because they were the biggest kid on the block in GSM and are waiting for the CDMA market to become big enough. But we firmly believe they will, if not in 1998, then in 1999.”
Bill Stone, network executive director for Bell Atlantic Mobile, northern New Jersey region, offered a different view. “In my own opinion, those manufacturers that try to set themselves up to be all things to all people are following a recipe for failure,” he said.
McClellan said the phenomenon of multiple standards isn’t as illogical as it may seem to some. Motorola devised the Narrowband Advanced Mobile Phone Service technology to address the capacity shortages inherent in AMPS, the U.S. analog cellular standard. But carriers feared a stranglehold by a single supplier, and digital standards of varying kinds came into play as alternatives, he said.
“Everyone portrays the United States as a bunch of crazy cowboys who have multiple standards and don’t want to pay for phones,” McClellan commented. “In fact, all standards fit distinct needs, and all choices were made rationally.”
