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Analyst firm: It’s a down year for wireless network vendors : Fitch Ratings forecasts trouble for Alcatel-Lucent, Nortel, Motorola

As the market digests news of Nortel’s financial failings, a new report forecasts the rest of the global telecom equipment vendor market also will have to gird for a rough 2009 – with some players remaining relatively unscathed while others could be forced into new strategies.
Fitch Ratings, which offered its forecast couched in the financially friendly phrase of “negative outlook,” also predicts that spending in North America and Europe will be hampered by the current economic climate, but markets in China, India and Latin America will continue to flourish with infrastructure activity. According to the report, global telecom equipment spending is expected to be down by single digits.
While the infrastructure market is expected to decline this year, the downturn will be less severe than that seen in 2001, when carriers cut back on spending because of the burst of the dotcom bubble, according to the report.
Fitch issued its report prior to Nortel’s bankruptcy filing today, but did acknowledge the possibility of such a move.
Bright spots
Network construction is expected to remain strong in China and India and subscriber upside remains in Latin American markets, according to the report.
China’s much anticipated 3G licensing is now under way and is expected to be a boom for infrastructure companies that are able to secure contracts. About $41 billion is expected to be spent on 3G deployment in the country by 2010 and $29 billion could be spent this year, according to Chinese government officials.
Global Insight Analyst Jing Li said the 3G deployment in China will be good news for Ericsson, Nokia Siemens Networks and Alcatel Lucent because these companies have established strong partnerships with the Chinese telecos. Local vendors, such as Huawei Technologies Co. and ZTE Corp., also stand to fare well in the TD-SCDMA segment, which will be used by China Mobile, Li said.
Investment in India will also remain resilient, according to the Fitch report.
Driving the market in India is low penetration, 28%, and one of the highest customer growth markets in the world, more than $10 million subscribers being added per month, according to the report.
But how will vendors fare?
As for large-scale mergers and acquisitions between infrastructure companies, Stuart Reid, senior director of Fitch’s European TMT team, said conditions are not conducive for such moves.
“Further industry consolidation could be seen with the failure or disposal of some parts of these businesses providing scope for the market leaders to increase market position and/or acquire assets at marked down prices,” Reid said in a company statement.
Fitch, which provides the world’s credit markets with independent and prospective credit opinions, said L.M. Ericsson, stable rating, and Nokia Corp., negative rating, will be protected as the two companies enter this year with good market position, healthy liquidity, limited refinancing needs and solid balance sheets.
Despite the positive outlook for the year, Nokia has received a negative rating from Fitch because the company has lower levels of liquidity and weakened cash flow performance in recent quarters, according to the report.
Alcatel-Lucent, Nortel Networks Corp. and Motorola Inc. also face a tough year as the three companies continue to implement new strategies.
According to the report, Alcatel-Lucent, which is not rated, continues to suffer limited profitability and weak cash flow performance since the company was created in 2006 with the merger of Alcatel SA and Lucent Technologies Inc.
This is a reflection on the company’s “poor product position in wireless networks” and because its integration efforts have been difficult to implement, according to the report.
Last month, Alcatel-Lucent announced a plan to return the company to profitability. The company plans to combine its capabilities of the network environment with the Web. The company also plans to invest heavily on 4G technology LTE and reign in spending on WiMAX. The company also announced plans to cut 1,000 managers and reduce contractors by 5,000.
In regards to Motorola, a negative rating, the company must continue its restructuring to “turn around its loss-making handsets division,” according to the report.
Motorola has announced that it plans to move forward in spinning off its handset division this year. Motorola was once ranked second in the global handset market but is now fourth. Motorola has also cut thousands of jobs and last month froze salaries and company contributions to employee retirement plans.


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