Network equipment divisions performed better for major wireless vendors in the third quarter than their handset businesses did. At Nokia Corp., handset sales figures still topped equipment sales, but infrastructure revenue was on the rise while handset sales declined.
Industry experts attribute this turnabout to a revival in infrastructure spending and a decline in handset margins.
“Service providers in Japan and Western Europe enhanced their W-CDMA network capacity in 3Q ’04 in anticipation of increased consumer demand at the end of the year,” said Greg Collins, senior director of mobile infrastructure research at Dell’Oro Group.
The research group reported sales of mobility infrastructure equipment jumped $155 million, or 2 percent, in the quarter. W-CDMA sales increased by $280 million in the period, while GSM sales jumped by $91 million and CDMA by $79 million, according to Dell’Oro Group.
Motorola’s handset revenues may have topped its network revenues in the third quarter, but networks brought in more money. Motorola’s handset business posted third-quarter sales of $3.9 billion, up 34 percent compared with the same period last year. However, its operating earnings stood at $90 million compared with a heftier $147 million a year ago.
In its infrastructure business, sales totaled $1.3 billion, up 24 percent from the year-ago period. Operating earnings stood at $175 million, compared with $61 million a year earlier.
In spite of Motorola’s big numbers for handsets, the Schaumburg, Ill.-based manufacturer did not make a dent in Nokia Corp.’s standing as the cell-phone market-share leader. Yet, Nokia suffered a 13-percent drop in its handset net sales compared with last year.
The Finnish company posted handset sales of $5.4 billion compared with $6.3 billion a year earlier. In its infrastructure business, Nokia recorded sales of $1.8 billion, up 21 percent from a year earlier.
L.M. Ericsson and Sony Ericsson reported robust results for the year. Although Sony Ericsson’s financial report for the year was impressive, its sequential growth was marginal, reflecting the general industry picture. Ericsson shares ownership in its handset venture with Sony Corp.
Ericsson’s network equipment business enjoyed sales of $4.4 billion, compared with $3.8 billion a year ago. Income totaled $666.7 million in contrast with a loss of $542 million a year ago. For the quarter, Ericsson enjoyed a rise in margins of 47.1 percent with net sales of $722 million.
Meanwhile, Sony Ericsson, counted net sales of $2.2 billion for the year, a leap from $1.68 billion last year. In the third quarter, its net sales totaled $1.94 million, bringing in income of $116.6 million for the third quarter, while the prior quarter had net income of $115.3 million.
Carl-Henric Svanberg, president and chief executive officer of Ericsson, attributed the network-gear performance to a catch-up effect, noting that carriers resumed spending to make up for the past two-year lag in investments in their networks.
Siemens AG reported third-quarter net income of $511 million compared with $149 million for the same period last year. But its handset business, which enjoys a strong position among premier device makers, suffered a loss of $196 million.
Many of the handset makers are battling competitive price pressures, compelling them to pare their margins. Some device makers are now paying more attention to original design manufacturers to cut their overheard runs, research and development, as well as time to market. Nokia is the latest to say it will consider the ODM option.
In the infrastructure business, companies like Alcatel Alsthom and Lucent Technologies Inc. soared in their third-quarter reports, emphasizing the sway of that segment of the wireless business.
According to Dell’Oro, the top four beneficiaries from W-CDMA contracts based on revenue for the quarter were Nokia with 41 percent; Siemens with 23 percent; NEC with 20 percent; and Ericsson with 15 percent of the contracts.
