It's Tough Out There

Earnings season is upon us, and it's a good time to capture a snapshot of the enterprise networking business, as reflected in results from the big telecom-equipment and mobile phone makers.

Bottom line: It's hard out there for an EMP (enterprise mobile provider). A few examples:

Ericsson AB (Nasdaq: ERIC), which reported last Friday, saw its earnings fall below expectations for the first time in more than two years, despite strong handset sales in North America (up 58 percent) and Asia/Pacific (44 percent). Analysts attributed the decline to the $2.1 billion acquisition of Marconi Corp. last October, but CEO Carl-Henric Svanberg said that stiffer competition in the enterprise networking business and lower margins for new managed service contracts – which Ericsson is counting on for sustained growth in coming years – cut into profits as well.

Reporting on April 18, Motorola Inc. (NYSE: MOT) said its network equipment sales for the quarter were down 14 percent compared with the same period last year.

Two days later, Nokia Corp. (NYSE: NOK) reported that enterprise solutions sales formed the lone blemish in otherwise robust first-quarter earnings. Net sales for the enterprise division fell 39 percent in the first quarter of 2006, compared to the same period a year earlier. (See Nokia: No Enterprise Love.)

While each of these companies has different strengths and varying challenges in selling equipment and providing services to enterprises, it's clear that the larger shift that's going on in the mobile industry – from selling more phones to providing higher-value services and enabling enterprise wireless solutions – is going to make for a bumpy ride.

"I don't blame Nokia for the market structure, but what's the business model for the enterprise mobility market?" asked Daniel Taylor, head of the Mobile Enterprise Alliance , in a comment on Unstrung's message board.

That's a question that big carriers and equipment makers are struggling to answer. What does this mean for enterprise IT managers? It's impossible to predict precisely, but it's safe to say that providers will be willing to bargain on price; that it's worth waiting and weighing various options before choosing wireless networking services, rather than going with the first offer from an existing provider; and that there are market shakeouts yet to come (Nokia, for instance, could be looking to shed its enterprise networking business altogether, according to some analysts) that will affect how providers approach the enterprise market.

In other words, right about now is when things start to get really interesting.

— Richard Martin, Senior Editor, Unstrung

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