Weekly Wrap:The China Syndrome
By Carlo Longino, Fri Jun 13 15:35:34 GMT 2003

Three major industry players blame SARS for earnings woes, and more...


The global fallout from SARS continued this week, but this time hitting right at the heart of the mobile industry as Motorola, Nokia, and Texas Instruments all gave gloomy mid-quarter updates that put much blame on the Asian epidemic. While Eric Ransdell's excellent article earlier this week touches on the long-term impact of the disease, all three companies say it will affect their second-quarter sales, as handset manufacturers have been counting on solid results from the hot Chinese market to boost flagging revenues - but consumers in many Asian countries are largely staying home out of fear of contracting the disease.

Motorola's warning came first on Monday when the company said dampened sales in China, where it makes 14 percent of its sales and has significant manufacturing operations, would push down its results a cent per share to 2 cents for the current quarter, but would also affect its full-year results. The company, which is the handset market share leader in China, is also facing increased competition from roughly 40 homegrown vendors. The company said it would launch 20 to 25 new handsets this year in an effort to bolster its position. A Moto exec said that 85 percent of the new models would have color screens, and a little less than half of them would feature cameras.

Nokia came next, the company saying Tuesday it might miss handset sales targets for the quarter, again blaming SARS but also the strong Euro. The company said sales would come in at the low end or below of its previous forecast of 4 to 12 percent growth. Some better news came from the company's networks division, where it said sales would only decline as much as 5 percent from last year's figures, when most analysts were expecting a double-digit decline. The company then later said it planned to double its marketing spending in the US in an effort to overtake Motorola as the country's top handset vendor. Nokia has made a push into the market this year, renewing its CDMA portfolio with a number of new models, and is also battling Motorola in China, where it recently launched a handset with Chinese character-recognition capabilities.

Chipmaker Texas Instruments followed later that day by lowering its sales estimates for the second quarter - no surprise, really, as Nokia is its largest customer, and other Asian wireless customers are also reeling. The company said its second-quarter revenues would grow by only 5 percent, as opposed to the earlier estimate of 7 percent.

JavaOne, the major Java trade show, was this week in San Francisco, and mobile was at the forefront. Sun and Intel, typically fierce competitors, announced they'd work together to tune Sun's J2ME virtual machine for Intel's XScale mobile processors, in turn making both the Sun JVM and Intel processors more attractive to device makers. Nokia also said it had released a new Java developer's toolkit that supports the latest version of J2ME, and added support for the MIDP 2.0 to its Series 60 platform.

Hutchison UK found itself back in the news again, and again not necessarily for the right reasons. The company helped decimate the share prices of its UK rivals last week by deeply cutting the prices for its 3G services, sparking investor fears of a coming European price war, and this week was having more trouble with partner KPN. Parent Hutchison Whampoa confirmed it had filed suit against the Dutch telco, stemming from KPN's refusal to grant the UK operation a GBP 150 million loan, which Whampoa contends it is required to do by a shareholder agreement. KPN, which has already written off its investment in the carrier, then countersued, demanding the Hong Kong firm buy it out of the UK partnership.

This week also saw speculation that Hutchison could pull the plug on the venture should its hard times continue. The company has signed up only 25,000 UK subscribers and 100,000 in Italy, well short of its year-end goal of a combined 2 million. The company has said it expects the 3G business to be EBITDA positive by 2005, something that given disappointing subscriber figures and price cuts, seems increasingly unlikely.