The Wireless Boom
Already Expanding Market Surges After September 11
By Michael Murphy
Editor, Technology Investing
November 9, 2001
I think you'll agree that the world feels like a different place since September 11. Yes, we're doing a good job of trying to get back to normal, but there is a lingering uncertainty that wasn't there before. One way Americans are dealing with that uncertainty is to make sure they can get in touch with loved ones in a moment's notice. That means buying cell phones.
You already know that the world is going wireless. You see it all around you. People are on their cell phones in the grocery stores ("Honey, which brand of coffee did you say you want?"), at the movies, driving down the highway and on the beach. I've seen people read entire restaurant menus over a cell phone and then order for a friend who's on his way. I've even heard of cell phones ringing in restrooms. Talk about being available anytime, anywhere!
Since the World Trade Center tragedy, Americans now understand how these phones can keep them in constant touch with friends and family. Many now view the cell phone as a necessity, not a luxury item, and sales in the U.S. have increased since September 11. But cell phones for the purpose of making calls are just one piece of what is a vast wireless pie. The new generation (2.5G and 3G) cell phones will also allow the Internet to follow people everywhere they go, and will include high-speed Internet access, global positioning systems, instant messaging, video, stereo and plenty of capacity to store your phone numbers, addresses, calendars…you name it.
Imagine running into the grocery store and waving your cell phone to trigger a debit from your account; checking in on the kids via the video-on-demand feature on your phone; or researching a candidate's position and then casting your vote—all using your cell phone. The days of kids' passing notes in class will be gone—wireless messaging will be the way of silent communication. And if you forget to set your home security system or can't get home in time to watch your favorite show, you'll be able to set the alarm and your VCR through that same wireless phone. As you can see, wireless technology will continue to change the way we live, and that means tremendous potential for smart investors.
The wireless market has already grown like mad, but we're just in the beginning stages. Over the last three years, the sector has averaged 50% growth. This year will probably be pretty flat because of the economic slowdown, but there are encouraging signs despite tough conditions. The excess inventory that plagued the industry earlier in the year has cleared out, making this the first sector to have recovered. Also, the number of subscribers to wireless services will show a solid increase this year, and I expect to see robust growth continue in that area for the next 12 years or so.
Going Global
While wireless continues to be big in the U.S., the real opportunity is in global growth. In Europe, it is already commonplace to have only a cell phone—not a home phone—and this trend is just beginning to take hold around the world. In Western Europe alone, it is estimated that 57.3 billion messages will be sent just this year. In Finland, which already has a 2.5G network in place, you can point your cell phone at, say, a vending machine, and charge the purchase to your cell phone bill. That's just the tip of the iceberg.
For example, China is the second most important cell phone market in the world (behind the United States). There are literally more than a billion Chinese who want Internet access, and wireless is the fastest, best way to get them there. Currently, the United States cell phone penetration rate hovers around 40%, representing about 100 million subscribers. By contrast, China has an approximate penetration rate of only 5% (59 million subscribers), but adds 100,000 new cell phone subscribers per day. By 2003, the United States should have approximately 196 million subscribers. In the same year, China will have 180 million, and by 2004 that number could rise to 225 million.
At this point, European kids on the playground call each other with a short messaging service (SMS) that's the digital equivalent of passing notes in class. The digital cellular revolution won't be over until every kid in China is doing the same thing.
And that's just part of the story. Not only will the wireless market expand, it will also see growth as we replace essentially every existing cellular phone over the next three years or so with the 2.5G and 3G successors. Unit volumes that high not only use lots of silicon for the handsets themselves, they "pull through" enormous amounts of systems and components for the backbone infrastructure required to handle all those calls. Of course, that whole infrastructure also has to be upgraded for 2.5G and 3G services, which means another major round of upgrade sales.
Nokia: The Leader of the Pack
So, how do you make your money? In Technology Investing, we profit from the dominant industry leaders, and in wireless that's Nokia (NYSE: NOK), the #1 cell phone handset maker in the world. They've captured about 35% of the market, while the #2 and #3 handset makers have 13% and 7% respectively. Why is Nokia better than the rest? Because they have a more complete and innovative product portfolio, better execution and a thorough understanding of the consumer market.
One of the keys to Nokia's continued success is that in addition to their ability to stay ahead on the technology front, Nokia is consumer-focused. They know that in the cell phone business, branding and brand loyalty sell handsets, and they've successfully established a well-known brand. In fact, Nokia has the fifth-most-recognized brand name in the world—behind only Coke, Microsoft, IBM and Intel. Sales from handset replacement in developed countries are now about 40% of the market, but that will grow to 80% in a few years as you and I continue to upgrade to the new-and-improved phones on the market. The strong consumer loyalty exhibited by Nokia phone owners should result in continued strong sales. Nokia also profits nicely from the all-important China market I just told you about, generating 14% of its sales there, ahead of the #2 and #3 players. Overall, NOK has captured about 31% of the market in China.
Wall Street is starting to catch on. The stock is up nearly 60% since September 11, but there's much more to come. The company recently reported earnings, beating estimates by a penny. But the really good news: NOK sees a stronger fourth quarter, with sales up 20% sequentially. They look for growth of around 25% in 2002 for the cell phone industry, and they see continued market share gains ahead.
If you don't own Nokia, you may want to get on your cell phone (no matter who manufactured it!) and call your broker. You don't want to miss this opportunity.
na ja, er pusht nokia etwa zu sehr, aber im mobilfunkbereich kann es bald wieder richtige gewinner geben.
gruß,
zick-zock
