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Ericsson Eats Into CDMA

Light Reading
LR Mobile News Analysis
Light Reading
4/23/2004

LM Ericsson (Nasdaq: ERICY) used today’s impressive first-quarter 2004 results as an opportunity to tout a huge increase in its Code Division Multiple Access (CDMA) infrastructure market share (see Ericsson Impresses Again).

The Swedish vendor is traditionally associated with the European-backed GSM (Global System for Mobile communications) and W-CDMA (Wideband CDMA) sectors, battling for top spot with Finland’s Nokia Corp. (NYSE: NOK).

The vendor raised eyebrows in 2002, however, by declaring its intention to win a top-three place and 15 percent market share in the rival CDMA business –- a “spread spectrum” digital, cellular, air interface technology mainly used in the U.S. and South Korea.

Ericsson appears on track to achieve such targets, in light of comments this morning from president and CEO Carl-Henric Svanberg.

“We have [previously] reported that our market share is around 5 percent. We have at least doubled that or more in contracts received and are building up our position,” he told a press conference in Stockholm. “The fact we are now building the CDMA technology on the same hardware platform as W-CDMA -- it is just the software that is different -- strengthens our position considerably.” (See Ericsson Ships Dualmode 3G and Ericsson Aims for Broader Base.)

Svanberg’s claims confirm the findings of an Unstrung Insider report last year that flagged the Swedish vendor as a potential major force in the CDMA market, a sector dominated by U.S. manufacturers Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Ltd. (NYSE/Toronto: NT). (See Ericsson's CDMA Cheer.)

Both players reign over foreign competitors on their home turf, North America, a region Svanberg is keen to tackle. “It is quite natural that we gain market share in India and China... Of course, over time we want to break into the U.S. as well.” (See Ericsson Expands China Unicom and Ericsson Does Tata CDMA.)

The CEO’s bullish comments are backed up by a strong set of first-quarter results. Net income was 3 billion Swedish krona (US$391 million), a marked turnaround from a SEK 4.31 billion ($562 million) loss a year earlier (see Ericsson Spirals Downward). Sales were up 9 percent year-on-year to SEK 28.1 billion ($3.7 billion).

Ericsson is also confident that the recovery in the network infrastructure market is set to strengthen. A 22 percent year-on-year increase in orders booked -- SEK 33 billion ($4.3 billion) compared to last year’s SEK 27.1 billion ($3.54 billion) -- has prompted Svanberg to amend a forecast made last quarter (see Ericsson Soars on Q4 Results).

“We estimate that the global mobile systems market in 2004, measured in USD, will show slight to moderate growth, compared to 2003,” he says in a statement. “Our previous estimate of the global mobile systems market was to be in line with, or show slight growth, compared to 2003.”

Nomura Holdings Inc. analyst Dr Richard Windsor believes Ericsson’s forecasts should be interpreted as a “5 to 7 percent” overall market growth rate.

Ericsson’s shares defied the business uptick, falling 2.9 percent at press time to SEK 23.6 ($3.1) per share.

— Justin Springham, Senior Editor, Europe, Unstrung

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