MARKET COMMENT
Would You Buy a Phone from this Company?

By David Kuo (TMFDragon)
April 20, 2001

Carburton Street, London -- From the most recently available market share data, Nokia (NYSE: NOK) had 31% of the mobile phone market. Motorola (NYSE: MOT) was a respectable second with 15% but Ericsson (Nasdaq: ERICY) a very disappointing third with just 10% of the cellphone market.

This morning's first quarter results from Ericsson and Nokia highlights the very different problems for these two Scandinavian neighbours. Nokia will be examining its business plan to see how it can achieve its aim of increasing market share to 40%. Ericsson on the other hand will be applying tourniquets to various parts of its operations to stem the outflow of cash.

Nokia reported a 20% growth in handset sales to £3.6b for the first quarter of this year. Operating profit from cellphone manufacturing was £0.75b giving this side of the business an operating margin of just over 20%. Meanwhile, sales of Ericsson's handsets fell 52% to 0.5b Swedish Kronor. Furthermore, the division reported an operating loss of £0.5b for the first fiscal quarter. And while Nokia is forecasting continued growth for its handset business, albeit lower at 20%, Ericsson expects worsening phone sales compared with last year.

Ericsson blamed an inventory glut and cuts in subsidies by mobile phone operators for its woes. Clearly this is a problem for both companies since Nokia was also forced to lower guidance figures. However, in the case of Nokia, its superior marketing mix enabled it to weather the storm a whole lot better than its Swedish rival. But Nokia should not count its chickens too soon because consumers are a fickle lot. Ericsson is rumoured to be teaming up with Sony (NYSE: SNE) to form a cellular phone company in Britain. And the deal could be announced as early as next week.

More: Telecommunications Sector discussion board.

The writer owns shares in Motorola.