News
Issue #2002 - 40 (October 2002)
(Updated Oct. 22, 2002)

MARKET OUTLOOK & TRENDS

Lots of Clouds, But Some Silver Lining

Nokia Reports Higher 3Q Profits
Nokia reported a $597.8 million, or 13 cents a share, third-quarter profit, compared with a $181 million, or four cents a share, profit for the same period last year. The company saw increased demand for its color screen and multimedia cell phones, while the market for wireless network equipment remained "challenging." Nokia said it still expects that 400 million phones will be sold worldwide this year, and that its fourth-quarter sales would increase between two and five percent. (Source: Reuters, BBC, Bloomberg, CBS MarketWatch, Wall Street Journal) 

Third-quarter 2002 (IAS) compared with third-quarter 2001:

• Net sales increased 2% to EUR 7 224 million (EUR 7 050 million in 3Q 2001).
• Pro forma operating profit increased by 14% to EUR 1 219 million (EUR 1 071 million); pro forma operating margin increased to 16.9% (15.2%).
• Reported operating profit increased to EUR 859 million (EUR 284 million); reported operating margin increased to 11.9% (4.0%).
• Pro forma adjustments: a one-time charge of EUR 306 million related to outstanding long-term financing to MobilCom and EUR 54 million in goodwill amortization. 
• Pro forma earnings per share (diluted) increased to EUR 0.18 (EUR 0.16).
• Reported net profit increased to EUR 610 million (EUR 186 million) and reported earnings per share (diluted) increased to EUR 0.13 (EUR 0.04).
• Operating cash flow in the third quarter was EUR 2.2 billion (EUR 1.4 billion).

Motorola's Financial Outlook - Fourth Quarter 2002 and Full Year 2003
SCHAUMBURG, ILL. -October 16, 2002 -Motorola Reports Net Profit; Cuts Fourth-Quarter and 2003 Forecasts

Buoyed by the performance of its mobile phone and semiconductor units, Motorola reported a net profit for the third quarter of $111 million or five cents a share, in line with analysts' estimates of a four to seven cents a share profit. For the same period last year, the company reported a net loss of $1.4 billion or 64 cents a share. The mobile phone unit, Motorola Personal Communications, reported net earnings of $241 million, compared with a loss of $233 million for the third quarter of 2002. The semiconductor unit reported a $13 million profit, compared with a $418 million loss for the same period last year. Motorola reduced its fourth-quarter and 2003 sales and earnings estimates, citing slow demand for wireless infrastructure, broadband equipment and semiconductors. 

Separately, the Financial Times reported last week that STMicroelectronics (ST) is in talks to acquire Motorola's semiconductor unit. The combination of the Motorola unit and ST would create the world's second largest chipmaker after Intel. Motorola declined to comment on the story. ST strongly denied that it is in any negotiations with Motorola on a potential merger or acquisition of their semiconductor business. (Source: Bloomberg, Wall Street Journal, CBS MarketWatch, New York Times, Financial Times, Reuters) 

Ericsson losses rise as sales fall
(October 18, 2002 02:54 GMT - Mobile Commerce - Timo Poropudas) 

The Swedish-based Ericsson reported a net loss of 5.6 billion crowns (EUR 615 million), or 0.41 crowns a share, in the third quarter, compared to a loss of 4.3 billion, or 0.37 crowns a share, a year earlier. 

Net sales fell 29 percent to 33.5 billion crowns (EUR 3.68 billion) in the third quarter from 47 billion crowns in the same three-month period in 2001. Orders plunged 46 percent to 20.5 billion crowns from 38.1 billion crowns. 

Pre-tax losses grew to 3.9 billion crowns (EUR 428 million) from 6.4 billion crowns a year earlier. Analysts had been expecting a loss of 3.2 billion crowns in the third quarter. 

Ericsson, which raised USD 3.2 billion in a share sale to bolster its balance sheet, is struggling to keep the promise of returning to profitability in next year. 

The company has cut 42,000 jobs and turned its handset business over to a joint venture with Japanese Sony. Sony Ericsson was created in October last year. Despite a goal of making profit in the first year of its operations, Ericsson has said the 50-50 joint venture would make a loss this year.

The only slightly positive number presented by Ericsson was the two percent growth in GSM/WCDMA sales and improved market position in these networks.

"Mobile communications is a long-term growth business. Over half a million new subscribers sign up each day and people are using their phones more and more. With only 17% worldwide penetration and mobile data just beginning, significant need for network expansion lies ahead," says Kurt Hellström, president and CEO of Ericsson.

Can Ericsson stay in the distance race? That is the question.
Ericsson's own view of the near term is bleak: "The industry outlook continues to be uncertain. Many operators pursue more gradual 3G rollouts or target fewer markets. However, we are also seeing consolidations, restructurings and a more favorable regulatory environment, which we view as positive signs toward market stabilization."

However, the "positive" consolidation development leads to less business for Ericsson. Already, the order cancellations add to staggering SEK 10 billion (EUR 911 million) during the 9 months of this year. The third quarter alone SEK 5,4 billion in cancellations. As a results the systems orders declined 49 percent.

Ericsson's cash flow before financing activities was SEK - 2.7 billion in the quarter. This includes SEK 2.3 billion from the sale of Microelectronics operations, which was offset by losses in customer financing of SEK 2.3 billion.

Analysts Say Lucent Could Run Out of Cash by 2004
Analysts are less optimistic about Lucent Technologies than its executives are, some seeing it run out of cash by 2004, then having to get extra funding, break up or go bankrupt. CEO Patricia Russo says the company will have more than $2 billion in cash on September 30, 2003, the end of its next fiscal year, but she admits that the road ahead is rough. "It feels like we are trying to fly a 747 through a storm and change the engines at the same time," she said. (Source: Bloomberg)

Sierra Wireless Reports Small Profit
Sierra Wireless reported a surprise third quarter profit of $503,000 Canadian (3 cents a share) compared with $3.9 million loss last year, as sales of its modems came higher than expected. 

General Market Outlook - 3G Weak, WLAN Strong
The 2003 forecast for worldwide 3G phone sales is 432 million units. This is down from original expectations, so handset manufacturers are looking for a killer application to help their cause. 

Third-quarter reports have been released, and analysts have mixed feelings about what to expect. Despite strong showings by such companies as Verizon, T-Mobile and Nextel, some think that the industry will suffer from the WorldCom debacle, which will likely affect AT&T Wireless and Cingular, Worldcom's two largest suppliers.

Results from other industry sectors, including WLAN developers, also will be in the spotlight. Take Proxim, which made public that is anticipating lower than expected revenue for the third quarter. This
announcement sent the company's shares plummeting 59 percent last week.

For more information: www.nokia.com, http://motorola.com, http://www.ericsson.com, http://www.lucent.com

MobileInfo Comments and Advisory: Majority of vendors barring some exceptions like Nokia are in financial distress for the time being. Sierra Wireless seems to have turned around. We do not expect quick improvement and everybody to survive this rationalization. But those vendors who survive will do well in the long run. Carriers should be careful about betting on the right network vendor. One question they must ask themselves - what if our supplier goes down. Quite likely, the carriers know more than we do about the health of their suppliers. For the enterprise, open interoperable solutions is a better bet for the short term. Consumers are on their own and they will pay the price. 

Note: This news release may contain forward-looking statements. Readers should take appropriate caution in developing plans utilizing these products, services and technology architectures.  All trademarks used in this summary are the property of their respective owners.