Motorola Inc, Sony Ericsson Mobile Communications Ltd and other cellphone makers attending Asia's biggest telecommunications show this week failed to convince investors including Jarmo Nieminen that their new products will drive an earnings rebound.
While Motorola, the world's second-largest mobile phone maker, and Sony Ericsson, Europe's No. 2, focused promotional spending on their latest handsets that can play music and video clips, executives said sales of cheaper handsets in emerging markets may set the pace for sales growth.
Price Erosion
"Price erosion is a serious concern," said Nieminen, a fund manager at Nordea AB in Helsinki, which manages US$130 billion, including Nokia shares.
"As they enter China and other big markets, prices will further decline," he said.
The emphasis on cheaper phones highlights the importance of China and India, where most of the population don't own a cellular phone, to the US$1.1 trillion wireless industry, which includes mobile phones. Handset prices will probably fall this year and next on rising competition and slowing subscriber growth in North America, Western Europe, and parts of Asia, according to research firm Strategy Analytics.
Illinois-based Motorola plans to increase sales of handsets with a wholesale price of less than US$40 each, which are manufactured by Compal Communications Inc (華寶通訊), David Taylor, a Motorola director, said in Singapore this week.
"We don't make as much margin from a product that costs US$50 than from a product that costs US$300, but equally, we sell an awful lot more of the products costing US$50," Taylor said.
"If you don't play in that low-tier part, you're excluding yourself from a load full of people in the marketplace and your market share suffers," he added.
Sony Ericsson, the London-based mobile-phone venture owned by Sony Corp and Ericsson AB, also said it will introduce cheaper, entry-level phones for markets in China and India.
"It's a very competitive market," Jan Wareby, executive vice president of Sony Ericsson, said this week.
The telecom services industry group has fallen 9.7 percent this year, the worst performer in Morgan Stanley Capital International Inc's World Index on concern of slowing subscriber growth in developed markets. The industry group has underperformed the MSCI World in four of the last five years.
Handset Revenue
Average handset prices will fall 4.9 percent to US$155 this year and drop 4.5 percent next year, according to Neil Mawston, a London-based analyst at Strategy Analytics.
`If you've got earnings growth, then we would be interested in telecom stocks," said Khiem Do, who oversees US$3.3 billion as head of Asian equities at Baring Asset Management in Hong Kong.
"But it's something that we are seeing very little of," he said.
Sales of the phones that work on so-called third-generation, which accounted for 3 percent of global handset revenue last year, aren't expected to top 50 percent of total sales at least until the end of the decade, according to Ben Wood, a telecom analyst at researcher Gartner Inc in London.
For companies that build the wireless networks such as Ericsson, the world's largest maker of mobile phone equipment, and Lucent Technologies Inc, the largest US telephone equipment maker, China and India are a boon for business.
Ericsson said on June 14 it won contracts worth US$250 million from Bharti Tele-Ventures Ltd, India's largest mobile phone operator. Lucent said this week it won six orders in Asia, including contracts from China, without disclosing the value.
RSS