Nokia Passes Medical

Nokia Corp.’s (NYSE: NOK) network division may be strangling the Finnish company's earnings at present but it is still the number yksi wireless equipment vendor in terms of financial status, according to the findings of the latest Unstrung Insider report -- Financial Healthcheck: Top 10 Wireless Equipment Vendors.

The study analyzed which vendors are managing the downturn most effectively and which are best positioned for any recovery. Data used to assess the ten firms was collected from their past eight quarterly financial reports. A total of 27 different criteria were used to rank each vendor, including market capitalization, share price performance, market share, credit ratings, and overall company revenues. Each vendor was ranked on a scale of 1 to 10 for each criterion -- 10 being the best score.

The Finnish behemoth emerged as the clear winner. According to Gabriel Brown, author of the report, Nokia's lead status is due mainly to the fact that it is the only one of the ten vendors listed to have posted a profit at its wireless network equipment business over the past eight quarters. “It also has a sound financial position thanks to the ongoing success of its handset business,” he writes.

Motorola Inc. (NYSE: MOT) is also showing signs of bucking the downturn, following last week’s news that it has reported a first-quarter net profit of $169 million on sales of $6.04 billion -- its ninth consecutive quarter of positive operating cash flow (see Motorola Profits From Cutbacks).

The company is listed as one of the market’s most improved infrastructure players over the past year. “The growth in net income is especially positive,” says Brown. “Motorola is the clear number two in the final global rankings. The company scored highly in many key areas, and is probably the most improved business overall.”

Brown also cites Alcatel SA (NYSE: ALA; Paris: CGEP:PA) as worthy of its third-place status, given the profitability at its wireless equipment business and its impressive achievement of growing revenues and expanding margins in a declining market. Market leader LM Ericsson (Nasdaq: ERICY) (by share of contracts won, at least) fails to reflect its top-of-the-class position, finishing fifth in the final rankings. The top ten classification is outlined in full below:

Despite the global telecom downturn, it is clear that wireless infrastructure is still a fiercely competitive market -- one worth $49 billion in 2002, according to the report. An encouraging sign for the sector is the marked improvement seen in the fourth quarter of 2002, when revenues grew 14 percent sequentially (see diagram below). Likely causes of such growth could include revenues from the first 3G W-CDMA networks ramping up, as well the traditional "budget flushing" by carriers towards the end of each year.

The outlook for the wireless equipment sector in 2003 is less positive, however. The best the industry can hope for is that the market remain flat this year, with possibly some minor improvement to the overall profitability of the sector. However, the most likely scenario, according to Brown, is another year of revenue decline on the order of 10 to 15 percent, suggesting a total market size of around $43 billion in 2003. Such estimation is in line with Nokia’s statement last week that demand for its network equipment products will fall by 15 percent or more this year (see Finns Flummoxed, Flopping ).

The full report is available now for $400. An annual subscription to Unstrung Insider is ordinarily $1,250 but is currently available at the special introductory price of $899. For more details, including subscription information and research examples, visit www.unstrung.com/insider.

— Justin Springham, Senior Editor, Europe, Unstrung

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