TODAY BEGINS THE FOURTH QUARTER-the crazy, blow-out-the-pipes holiday season for most retailers, including those in the wireless industry. Financial numbers for the past three months are due soon.
The numbers, of course, may answer some questions about how well companies delivered the goods in the third quarter. But it’s what the numbers say about larger issues that’s key. Two analysts weighed in with their view of those issues.
Meanwhile, a few attention-grabbing headlines over recent weeks suggested possible, far-reaching upshots to the quarter:
● “Motorola Back on Track,” suggested Forbes.com, based on one financial analyst’s conclusion from his channel checks that the Razr2 was selling well. (Not even Motorola Inc. expects profitability before next year, though a different analyst also said Moto’s fortunes are emerging from a trough.)
● “Better Than Apple?” asked TheMotleyFool.com, essentially looking askance at a Barron’s headline that suggested Nokia Corp.’s stock is about to soar as the company achieves global hegemony.
So much for the headline-shell game that takes speculation to nose-bleeding heights. Without lofty guidance or dire warnings from the handset vendors themselves-save for lowered expectations again from Motorola and Palm Inc.-no major changes in the handset pecking order are expected. A couple of analysts weighed in, however, on what ongoing issues they’re pondering when the numbers roll in for parsing.
Ken Hyers, analyst at Technology Business Research, Inc., began at the top.
“Nokia increased its worldwide share in the second quarter, while its North American share shrank,” Hyers said. “The question is, ‘How are they turning that around?’ They’re definitely under-represented in higher-end devices here (in the United States). I’ll look to see if they’ve arrested their decline in North American market share.”
Has Motorola reached its nadir? Or will results for the third quarter, for which the vendor has lowered expectations, bear more bad news?
“I’d like to see them arrest their decline in the number of units shipped,” Hyers said. “And we need to see their resolve holding steady on ASPs (average selling prices). I don’t see them making a significant recovery this year.”
Razr2 impact
Despite the Forbes.com headline and its implication that the Razr2 may be a modest hit, Hyers added, Motorola needs a broad portfolio of profitable handsets. Runaway bestsellers, such as the first Razr, are exceedingly elusive.
Tero Kuittinen, analyst at Avian Securities, L.L.C., said the third quarter’s impact is largely shaped by the handset launches in September, which set the tone for a vendor’s fourth quarter.
“The third quarter is all about guidance for the fourth quarter,” Kuittinen said.
Therefore he will scan vendors’ earnings reports mostly for guidance on the critical fourth quarter. Motorola is high on his list of companies to watch.
Motorola may well have lowered expectations in hopes of exceeding them, Kuittinen said. Moto has “a good shot” at delivering 2 million more units than they did in the second quarter and, possibly, seeing a sequential uptick in ASPs, based on Razr2 sales. Between the Razr2-launched simultaneously at all four, top-tier U.S. carriers and internationally-and the Moto Q music 9m at Verizon, Motorola was the only major vendor to launch high-end devices in the U.S. in time to see results in the third quarter, Kuittinen said.
Clinging to No. 2
Samsung, for Hyers’ money, has adroitly exploited Motorola’s sagging fortunes.
“What I like about the company, globally, is that its products cover such a wide swath of the market, from the Ultra Edition to entry-level,” Hyers said. “But they’re not doing ultra-low-end and thus are controlling ASPs.”
But without major increases in expected unit shipments, the Korean vendor-which has captured the global No. 2 spot-will have to contend with a resurgent Motorola, the analyst said. Plus, in the U.S. market, Samsung has LG Electronics Co. Ltd. nipping at its heels.
“Samsung is battling competition from both sides,” Hyers said. “They need to watch their back.”
As Sony Ericsson Mobile Communications L.P. takes the plunge into emerging markets, its ASPs may suffer, the analyst said.
“Gaining market share is perilous,” Hyers said. “But Sony Ericsson is a smart company. I’m not too worried.”
Hyers is upbeat on LG’s fortunes as well, as the company consistently delivers products to carriers’ requirements.
“North America has become an important market for them,” Hyers concluded.
Oh yeah, one major metric under scrutiny by both analysts: net subscriber adds at AT&T Mobility and Verizon Wireless, which may reflect the iPhone’s drawing power.
“AT&T should show net adds in the range of 300,000 to 400,000 to show the iPhone makes a clear difference,” Kuittinen said.
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Looking ahead.
Despite the hype over mobile TV and touchscreens, consumers are plunking down their money for music and messaging, according to Avi Greengart, analyst at Current Analysis.
Look for devices selling in the fourth quarter-with a few October launches still to go-to emphasize those attributes, Greengart said.
For Ken Hyers, analyst at Technology Business Research Inc., the iPhone influence is inescapable.
“Certainly Apple has drawn attention to issues such as the user interface, the touchscreen, obviously, and bringing music front and center,” said Hyers. “I think those attributes will be emphasized in the fourth quarter.”
The fact that Research In Motion Ltd. has added music and multimedia to its Pearl and Curve models, in a bid for the vast consumer market, is vindication that music and messaging will form a strong combination, Hyers said.
The growth of the smartphone segment in general, and the success of RIM and Apple in particular, also bode well for the notion that Americans’ perception of value in handsets-traditionally set at zero to $50 by carrier subsidies-is shifting. That’s good news for handset vendors, which are seeking healthy margins for profitability.
“You’re going to see a lot of high-end phones,” Hyers said. “You’re starting to see people be willing to spend substantially more for a device.”
“It’s a relief to have the iPhone finally out there,” Hyers concluded. “It’s a known quantity-and that has to be a relief to the other vendors.” -Phil Carson
