Kyocera Corp. hopes to do what no Japanese handset manufacturer has been able to do to date. It wants to become a dominate global vendor.
To do that, Kyocera needs to gain a significant share of the market in North America, analysts say. Kyocera has made some aggressive moves in recent months to put itself in that position. Most notably, last month it agreed to purchase Qualcomm Inc.’s Code Division Multiple Access handset division for an undisclosed price. Before that, Kyocera announced it would become a second handset provider for Nextel Communications Inc., which operates an integrated Digital Enhanced Network system. The vendor already manufactures satellite handsets for Iridium L.L.C. and sells CDMA handsets in Japan and South Korea.
Kyocera’s stock price since its announcement with Qualcomm has soared, but analysts note the Japanese vendor must pump a lot of money into Qualcomm’s unit to become successful. However, Kyocera has deep pockets.
“They will have to invest a ton into Qualcomm because the Koreans have been killing [Qualcomm] on price, which drove Qualcomm to become unprofitable in this space,” said Bryan Prohm, senior analyst with Dataquest. “Now Motorola (Inc.) and Nokia (Corp.) are getting even tougher on pricing.”
Japanese handset vendors don’t have a good track record in North America. The industry’s first handset phone manufacturer, Oki Telecom Inc., ended its U.S. operations in mid 1998 amid fierce price competition in the CDMA handset market. Sony Electronics Inc. pulled out of the North American handset business last year, suffering from handset quality issues, lack of product and high turnover in its management team. Worldwide, Japanese vendors have taken a back seat to European and American handset makers Nokia, Motorola and L.M. Ericsson. Japan’s Personal Digital Cellular technology never was adopted around the world as the Japanese had hoped.
“The Japanese vendors missed the boat in GSM (Global System for Mobile communications technology) and all are positioning themselves to be in the race for the next generation of systems,” said David Kerr, director of wireless programs with Strategy Analytics. “They need to be in the Americas … The biggest challenge will be demonstrating to operators that the design competency is close to the market. If everything has to go back to Japan and be approved, they might as well pack it in.”
Today, Japanese vendors could be in the pole position when it comes to offering the next generation of CDMA handsets. Japanese CDMA operators DDI Corp., IDO Corp. and KDD Corp.-which plan to merge their operations to become a nationwide operator-plan to migrate to the next phase of CDMA technology, known as 1XRTT, more quickly than North American CDMA operators, say analysts, giving Japanese vendors a major play in the North American CDMA market. Kyocera owns an equity stake in DDI and in South Korea’s largest operator SK Telecom, which recently acquired a majority stake in competitor Shinsegi Telecom. SK Telecom is positioning itself to purchase third-generation licenses next year.
Kyocera’s equity stake in Brazilian operator Global Telecom also will help it begin to penetrate the South American market, where demand for service increased substantially in recent months.
Qualcomm and Kyocera characterized their agreement as a partnership in which each will help the other penetrate new markets throughout the world that include GSM-centric Europe, China and South America. Qualcomm, which in the summer announced its intention to sell off the struggling handset unit by the end of 1999, had been in discussions with a number of players, including Siemens AG, Alcatel, Motorola, Nokia and Ericsson, say sources close to the discussions.
One of Qualcomm’s stipulations was to find a buyer that was willing to purchase a sizable amount of CDMA chipsets and software from it. This requirement may have scared many vendors away from the deal, say analysts, noting that most major manufacturers want to rely on their own chipsets. Kyocera agreed to purchase the majority of its CDMA chipsets and system software from Qualcomm for five years.
Germany’s Siemens, which has vowed to return to the North American handset market after closing its doors in the United States in 1998, plans to purchase Bosch Telecom, maker of the GSM World Phone, which has less than a 5-percent market share worldwide. Siemens, whose primary market is Germany, is trying to increase its global handset market share. Purchasing Qualcomm’s handset division would have given it the presence its needs in the North American market. Instead, it appears Siemens is trying to make strategic moves to become an early player in data-centric devices. It recently acquired a stake in smart-phone maker Neopoint Inc. and last month formed an alliance with Casio Computer Co. Ltd. to jointly develop a new line of palmtop personal computers with wireless Internet capability.
“Will Alcatel and Siemens make significant moves for global market share in 2000? Probably not,” said Kerr. “Siemens will gain only because the German market will explode. They are at least a lap behind.”
