Gartner Belabors the Obvious

EGHAM, U.K. -- Mobile network operators focused on short-term cash flow problems in 2002, as the worldwide mobile network infrastructure market totaled $44.9 billion, according to Gartner, Inc. (NYSE: IT and ITB). Gartner analysts said the market declined in 2002, and will continue to struggle in 2003.

"With the current economic conditions and short-term cash flow problems, mobile network operators were cautious about investing in new infrastructure in 2002," said Jason Chapman, principal analyst for Gartner's mobile network infrastructure research. "Instead, they focused on running mature networks and waited for user demand for mobile data services to increase. This has not happened yet, as the adoption among subscribers is still very slow."

Ericsson was the No. 1 vendor based on worldwide mobile network infrastructure revenue in 2002 (see Table 1), as it accounted for 29.5 percent of the market. Ericsson had more than double that of its nearest competitor, based on revenue.

Gartner analysts said Nokia's hopes for closing the gap rest on increased demand for wideband code division multiple access (W-CDMA) networks and on operators spending more on Global System for Mobile Communications (GSM) networks. Siemens performed well, as it won many new contracts, although most were small. Lucent Technologies and Motorola dominated the CDMA market, and Nortel Networks was the No. 3 vendor in this market.

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The top seven vendors announced 250 mobile network infrastructure contracts in 2002. Nearly 62 percent applied to GSM technologies, while 20 percent applied to W-CDMA. While GSM remained the dominant technology for declared contract value, Gartner analysts said there are still major challenges for vendors in this market.

Gartner analysts said 2003 is a critical year for a number of vendors that need to establish themselves in the two main 3G technology markets W-CDMA and CDMA2000 1x. Without success and associated revenue from both technologies, the cost of continued support of two standards, including research and development, sales and support facilities, will be too high and result in some vendors withdrawing from one of these markets.

"Some vendors are trying to address both technologies, but few, apart from Nortel, are currently successful in achieving this. Lucent and Motorola must work hard to win W-CDMA customers and Ericsson must continue to increase its CDMA business if it is to maximize economies of scale from high-volume shipment," Chapman said.

On a regional basis, Gartner said Western Europe and North America had a particularly tough year in 2002, while Asia/Pacific was the leading region accounting for 36 percent of the contracts announced by the top seven vendors.

"Asia/Pacific's importance to infrastructure vendors in terms of both revenue and technology will increase. The remainder of 2003 will be a period of intensified competition from smaller vendors outside the top seven, as the industry continues to focus on profit margins," said Chapman. "Most of these vendors are extending competitively priced propositions and aggressive sales strategies to the top vendors' home markets, and Huawei and ZTE are already setting up offices in Europe and North America. It is clearly not just in the emerging markets that established vendors should beware."

Additional information is available in the Gartner Focus Report "Mobile Network Infrastructure Market: Troubled Times in 2002 and More Ahead." This report examines how the top-tier vendors performed in 2002, and it breaks out market trends on a regional basis. It details the opportunities and challenges for companies in 2003. This report can be purchased on Gartner's Web site at http://www.gartner.com/DisplayDocument?id=394565&ref=g_search.

Gartner Inc.