Ericsson's CDMA Dreams
LM Ericsson (Nasdaq: ERICD) CEO and president Kurt Hellstrom used the company's strategy and technology summit in New York City Monday to do a brisk U-turn on his firm's CDMA2000 infrastructure strategy and to defend the much-maligned Sony Ericsson Mobile Communications handset venture.
Hellstrom, who took the stage along with CFO Sten Fornell and Angel Ruiz, president of the firm's North American business, is now saying that Ericsson wants to become one of the top three CDMA infrastructure equipment vendors over the next few years.
Back in September, Hellstrom said that if the company didn't sell more CDMA equipment, it would consider abandoning the market (see Ericsson: Look Before You Leap!). At the time, Nomura Holdings Inc. telecom analyst Richard Windsor said he thought Ericsson had around a five percent share of the market, behind vendors such as Motorola Computer Group, Nortel Networks Corp. (NYSE/Toronto: NT), and Lucent Technologies Inc. (NYSE: LU). He also said Ericsson would be crazy to get out of the CDMA2000 market. "CDMA2000 has done better than anyone expected," he said.
It seems that attitude has taken hold at Ericsson. Hellstrom now says that Ericsson is focusing on providing a GSM/GPRS upgrade path to 3G and a similar route to CDMA high-speed happiness. The company is expecting the business to be 80/20 split in favor of GSM-derived networks.
This is all well and good. But how does the company plan to get from being a CDMA minnow to a CDMA whale?
Hellstrom says the company has good CDMA technology -- Ericsson bought Qualcomm Inc.'s (Nasdaq: QCOM) network infrastructure business -- and intends to compete hard in Asia markets. He doesn't discount the prospect of some price cutting but says Ericsson has no plans to slash its CDMA prices.
Of course, one easy way to gain market share is to buy a struggling vendor that has a bigger market share than you. "If you look around in the industry, everybody may not be in top form," Hellstrom says. "We have the opportunity to enter the market that way… to grow non-organically… but I'm not going to say any more on that." Earlier in the presentation, CFO Fornell told the audience that the company has $7 billion cash in the bank that it could spend.
Certainly, most of the people that Unstrung talked to at the event seemed to think that an acquisition would be the only way for Ericsson to achieve its dream of becoming a major force in CDMA.
Phil Marshall, program manager of mobile and wireless technologies at Yankee Group reckons he knows what company Ericsson should buy if it does go that route.
"Lucent Technologies Inc. would be the most appropriate choice," he says. "They would give most bang for the buck in America." Earlier, Ericsson's Ruiz told the conference that North America is Ericsson's largest single market, representing 15 percent of its sales.
Aside from CDMA, the other about-face was the company's renewed enthusiasm for its mobile phone venture with Sony Corp. Both partners had agreed previously to invest up to €500 million ($492.5 million) in Sony Ericsson before the company's second anniversary in October 2003, but Ericsson had said it wanted to see increased sales and market share before it put in more money. Both sales and market share are on the decline.
But now Ericsson says its handset business is part of the big picture. "We are really planning to put some more money into Sony Ericsson early next year," Hellstrom says. The company is also looking at ways to allow Sony Ericsson to borrow money. What is not being revealed is the size of that investment or when exactly it will happen -- and we asked 'em nicely, as well.
Sony Ericsson's flagship P800 smartphone is now expected to be launched in Europe in the next few weeks, and sometime in January or February in the U.S.
— Dan Jones, Senior Editor, Unstrung www.unstrung.com