Ericsson Keeps CDMA Faith

Swedish vendor LM Ericsson (Nasdaq: ERICY) has confirmed its long-term commitment to the CDMA (Code Division Multiple Access) infrastructure market, as the company attempts to align its kit with equipment based on competing W-CDMA (Wideband CDMA) 3G technology.

Better known for its dominance of the European-backed W-CDMA market -- where it claims to enjoy a 40 percent share of contracts announced -- Ericsson raised eyebrows last year by declaring its intention to win a top three place and a profitable 15 percent market share in the rival CDMA business.

Industry opinion on its current level of CDMA success varies, with market share estimates ranging from 5 percent (Lehman Brothers) up to 8 percent (see Ericsson's CDMA Cheer).

Despite the clear shortfall, Ericsson remains confident for future growth. “We want to make it perfectly clear that we are here to stay in CDMA,” deputy CEO Per-Arne Sandström told Reuters during its annual analyst meeting last Friday. “It’s a very big and rapidly growing market.”

Analysts state that much of this success depends on its efforts at developing kit capable of working across both CDMA and W-CDMA networks.

“Through platform harmonization with the company’s W-CDMA solution (by end-2004 98 percent of the platforms will be common, according to Ericsson), management now believes that profitability is possible at below its previous 15 percent market share target,” writes Lehman Brothers analyst Stuart Jeffrey in a research note.

“[The] new 3G platform (available in 2004) will be cheaper to deploy and maintain and will span both W-CDMA and CDMA2000,” writes Nomura Holdings Inc.'s Dr Richard Windsor.

Ericsson itself is not prepared to reveal specific details on development of the kit. “We are moving to greater commonality of the platforms,” says spokesman James Borup. “It isn’t specifically a dualmode product, but we are trying to utilize as much as possible the same technology on the same platform. They would be slightly different products but built on a common design platform.”

The company’s efforts should, at least, bring to an end speculation that the vendor is considering selling its loss-making CDMA business.

“The degree of platform harmonization achieved means that a disposal of the business would likely prove difficult to achieve,” notes Lehman Brother’s Jeffrey.

The W-CDMA air interface is part of the Universal Mobile Telecommunications Standard (UMTS), adopted as the European 3G standard and also deployed in a number of Asian countries. Used with existing GSM core networks, W-CDMA-compliant handsets and base stations can potentially increase wireless data transfer rates to a maximum of 2 Mbit/s.

CDMA networks, meanwhile, offer a “spread spectrum” digital/cellular/air interace technology mainly used in the U.S. and South Korea. CDMA operates in the 800MHz band and 1.9GHz PCS band and supports data transfer speeds between 14.4 kbit/s and about 2 Mbit/s (in its latest third-generation variants).

— Justin Springham, Senior Editor, Europe, Unstrung

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