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Ericsson: Damn Yankees!

LM Ericsson (Nasdaq: ERICY) says the North Americans are messing everything up. It has told Lehman Brothers analysts that the global market for wireless network infrastructure looks set to decline by about 10 percent in 2003, with North America experiencing the greatest regional decline.

According to the estimates from Dell'Oro Group, the global wireless infrastructure market was worth nearly $29 billion in 2002.

While Latin America and Western Europe provide some hope for stabilization (or even slight increases in overall spending), the Swedish vendor's management believes the North American market will decline year-on-year by anything up to 20 percent, according to a Lehman research note. This is because much of the initial implementation of CDMA2000 1xRTT equipment, by Sprint PCS (NYSE: PCS) and Verizon Wireless, and GSM network construction, by AT&T Wireless Services Inc. (NYSE: AWE) and T-Mobile USA, has been completed.

Ericsson believes there is potential for some renewed business from the other major GSM player in the U.S., Cingular Wireless, which recently outlined capex plans of up to $3.8 billion for 2003, including up to $1.3 billion on expansion of its GSM overlay network. "Ericsson shares the account with both Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE), although we believe Ericsson has approximately 50 percent to 60 percent of the Cingular GSM contract," states the Lehman team.

Other North American opportunities may exist with regional Tier 2 and Tier 3 wireless operators, while the Swedes also have hopes of taking a piece of any Sprint PCS CDMA infrastructure action.

Elsewhere, Ericsson expects the Western European market to be anything from slightly down to up by 5 percent this year, while Asia looks like spending about 5 percent less than in 2002. The Latin American market could be anything from stable to up by 10 percent, according to Ericsson's predictions.

Among the world's wideband CDMA players -- GSM operators looking to build out 3G networks, along with greenfield operators such as Hutchison 3G Austria and other Hutchison Whampoa Ltd. (Hong Kong: 0013) 3G operations -- Ericsson does not predict many changes in supplier relationships, even though operators such as Orange SA (London/Paris: OGE), a current Ericsson 3G customer, have stated they are reviewing their vendor options. Any such shifts would not happen for a few years yet, Ericsson management told the Lehman team, and they would be unlikely to affect the Swedish company's clear lead in the WCDMA market, where it holds a near 40 percent market share of existing contracts.

But then, they would say that, wouldn't they?

— Ray Le Maistre, European Editor, Unstrung

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