Wireless Vendors' Performance Suggests Recovery Much Later

1. DoCoMo's Woes: shares hit 42-month low

Today shares of NTT DoCoMo fell to a three-and-a-half year low on worries about the carrier's growth prospects and potential write-downs on poorly performing overseas investments. The stock dropped 2.58 percent to 227,000 yen, the lowest price since March 1999, before recovering to end the day down 1.29 percent at 230,000 yen. DoCoMo is being slammed by three things: 1) the global telecom malaise; 2) the failure of its 3G service, FOMA, which has thus far failed to attract sufficient numbers of new subscribers; and 3) the lackluster performance of the carrier's foreign investments, like its loss generating stakes in AT&T Wireless. DoCoMo's mobile star continues to fall as it fails to live up to its hype. Rumors are starting to spread that the carrier's i-mode service, which it recently exported to Europe and the U.S., is not faring well overseas. If these rumors prove true, look for more DoCoMo woes in the weeks to come.
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2. Vodafone loses £4 billion after write-down
Investors stripped more than £4 billion from the value of Vodafone after UBS Warburg slashed its rating and price targets for its shares. UBS Warburg downgraded its recommendation on Vodafone's shares to 'hold' from 'strong buy'. The bad news spilled over to British rival mm02 with that company's shares taking a hit. The bank cited concerns about the pace at which Vodafone's subscribers are moving to 3G services. Vodafone's share price underperformed during the company's last migration, from analogue to digital between 1996 and 1998.

3. Nokia Cuts 3Q Sales Target, Keeps Profit Outlook
Nokia lowered its sales target for the third quarter to $6.94 to $7.23 billion from an earlier target of $6.95 to $7.25 billion. The company's network sales are expected to fall about five percent year over year. "In the mobile networks, the GSM market environment remained challenging with operator investments showing greater-than-expected declines," Nokia said in a statement. However, the company said its earnings per share for the quarter would be at the upper end of the 15 cent to 17 cent range previously announced. (Source: Bloomberg, Reuters, AP, Wall Street Journal) 

4. Lucent Expects Fiscal Fourth Quarter Revenue Decline
Lucent Technologies today announced that, due to continuing market softness and ongoing uncertainty in customer spending levels, particularly in North America, it currently expects revenues for the fourth fiscal quarter of 2002 to decline sequentially by approximately 20-25 percent from the $2.95 billion recorded in the third fiscal quarter. The company currently expects to post a pro forma loss per share in the fourth fiscal quarter of approximately 45 cents, primarily as a result of the sequential revenue decline, charges associated with a significant customer financing default this month, and the inability to recognize tax benefits on losses. The company had not previously provided guidance for the fourth fiscal quarter of 2002 due to ongoing market uncertainty. (Source: Reuters) 

5. Ericsson Outlook
Moody's announced last week that it has downgraded the long-term credit rating of Ericsson from Ba1 to Ba2, removing the Credit Watch status, but leaving the Outlook Negative. Credit agencies have been systematically lowering their ratings for the communication equipment industry in general and Ericsson in particular. While Ericsson has been very cautious in its recent comments, it did manage to issue a Rights offering to its shareholders, which it says got over-subscribed. The $3.2 billion rights issue is designed to help strengthen Ericsson's cash position and keep the wolves away for a few more months.

In a recent analysis, five of six analysts surveyed said Ericsson would not see profitability in the high-speed wireless network business until 2004. The sixth analyst said Ericsson's profitability would not come until 2005. Telecom companies are delaying or consolidating their network deployment plans, so the market for Ericsson, the world's largest wireless network maker, has slowed. Prior estimates forecast profits for Ericsson in 2003. (Source: Reuters) 


6. MobilCom May File for Bankruptcy
German carrier MobilCom may be forced to declare bankruptcy after France Telecom's decision to withdraw funding. The German company is due to issue a statement later today over possible legal action. MobilCom had insisted that its 28.5 percent shareholder was legally obliged to remain in the partnership and has threatened legal action if the French withdrew. However, the board of France Telecom, determined to cut the company's debt-burden of some €70 billion, decided to cut its links with the German company.

7. Orange moves into the black

Orange, the mobile phone group, today raised its financial targets for the year after reporting its first post-tax profits before exceptional items since its flotation last year. 

Orange is more than 85 per cent owned by France Telecom, the debt-laden French telecoms group which today announced record losses. The French group also announced it would ceased funding its German mobile phone arm, MobilCom, which is expected to file for insolvency as a result of the decision. Last night, the chairman of France Telecom, Michel Bon, resigned.

In sharp contrast, Orange said today it would raise its earnings targets as a result of its improved figures. It said it was now expecting EBITDA – earnings before interest, tax and depreciation – to come in at 4.7 billion euros (£3 billion) this year. The figure is 400 million euros (£253 million) above the group's previous target. Orange, which has 12.8 million customers in the UK, also expects the amount of funding it needs to be less than previously forecast. 

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MobileInfo Comments and Advisory: Surprisingly during the previous few weeks, financial news from the wireless sector was not encouraging at all. In this not-so-scientific headline survey, six out of seven companies including the big names like Ericsson gave pessimistic forecasts. This seems to suggest that red ink will continue to flow in 2003. What becomes very important in this environment is to re-engineer your business for market realities of today and have survival strategies in place.