Japanese vendor NEC Corp. may become the latest casualty in the hotly contested mobile-phone market.
According to a Reuters report, the company is looking for some kind of partnership with another mobile-phone vendor in order to bolster its sluggish handset business. An agreement could involve anything from a development and marketing alliance to an all-out joint venture.
An NEC spokesperson was not available to comment on the issue.
“They’re one of the more public examples of the competitive challenges facing smaller vendors who elect to compete globally,” said John Jackson, a mobile-phone analyst with research and consulting firm Yankee Group. “I see no imminent relief, and therefore expect consolidation and market exit will continue.” Mobile-phone makers Sendo and Alcatel Corp. already have exited the competitive handset space, he noted.
NEC’s troubles have been long in coming. Several years ago, the company was riding a wave of success with its Japanese handsets sales-such that it attempted a move into the lucrative U.S. market. The company signed a deal with AT&T Wireless Services Inc. to sell two advanced clamshell-style phones, but the partnership petered out when Cingular Wireless L.L.C. acquired the carrier. NEC has since given up on the U.S. market.
More recently, NEC’s sales in its home base of Japan have slowed significantly. As the Japanese market reaches saturation, the market’s handset vendors have begun squabbling over each other’s tenuous market position. Indeed, NEC’s revenues from wireless declined 16 percent in the first six months of this year compared with last year. The company said it plans an “early turn around” strategy for its mobile-phone business, one that includes a “revision of development strategy” and an acceleration of its business in China.
Part of NEC’s cost-cutting strategy may involve teaming with other Japanese semiconductor companies, according to reports. Such a partnership would give NEC’s struggling semiconductor business added heft.
Due to the company’s problems both abroad and at home, NEC’s worldwide mobile-phone market share likely will clock in at 1.2 percent this year, according to Yankee Group, on sales of around 10 million phones. The number is down significantly from the company’s 2004 market share of 1.8 percent on 13.6 million phones.
Interestingly, NEC was at the forefront of the industry’s move to W-CDMA. In the third quarter of 2004, NEC was the No. 1 supplier of 3G phones with a 34-percent global market share, according to research and consulting firm Strategy Analytics. However, with larger vendors ramping up their volumes, NEC dropped to the No. 3 position in the third quarter of this year with a 14-percent market share.
“This is a perfect example of the financial stress that 3G handset development can require of small companies without global scale,” said Chris Ambrosio, a mobile-phone researcher with Strategy Analytics. “The challenges of ongoing product technology development, combined with increasingly stringent carrier needs for UI (user interface) and feature configuration, are putting heavy burdens on smaller vendors who want to compete beyond their domestic market.”
As for NEC’s hopes for some type of mobile-phone partnership or joint venture, Ambrosio said the company will have to aim high to succeed.
“Unless it is Motorola or LG, it is questionable whether they will be able to find a partner with advantages or resources that will be able to rapidly remedy this situation for them in 2006 or 2007,” he said.
