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Friday, 25 January, 2002, 14:50 GMT
Signs of hope for mobile makers
By BBC News Online's James Arnold

It could all have been a great deal worse.

Mobile maker results, full-year 2001
Nokia:
Sales up 3% to 31bn euros
Net profit down 6% to 3.8bn euros
Motorola:
Sales down 20% to $30bn
$3.9bn net loss versus $1.3bn 2000 profit
Ericsson:
Sales down 5% to 211bn kronor
21.3bn kronor net loss versus 21bn kronor 2000 profit
The world's three biggest mobile phone makers - Nokia, Motorola and Ericsson - reported their 2001 results this week, and most people were expecting a blood bath.

A slowing global economy, combined with pickier customers, made for dismal mobile sales in the run-up to Christmas, and a series of dire warnings from the firms that make, sell and supply phones.

But the results, when they came, were surprisingly perky.

The big three are certainly selling less, and two of them have dropped into the red, but read between the lines and the fundamentals of the industry suddenly start to look a little brighter.

Good riddance

The end of last year certainly was a grim time for the mobile phones trade.

Sales growth was already tailing off before 11 September.

A Motorola concept phone
3G technology: Tomorrow's toys today

And then Christmas trade, which worldwide was sensational in 2000, was a damp squib.

Some retailers reported year-on-year mobiles sales falling by as much as half.

Nor was it merely 11 September shock, or recessionary belt-tightening, that sparked the slowdown.

Instead, the market was afflicted with much of the same problem that has also hit computer sales: even the cheapest mobiles now last forever, and do everything their user needs, so why buy a new one?

Sales suffer

This was reflected in the year-end figures of the big three manufacturers.

Share price performance since May 2000
Nokia: -62%
Motorola: -78%
Ericsson: -81%

All suffered a slowdown in sales for the fourth quarter, and for the year as a whole.

In the worst case, Motorola, the world's number two, saw sales drop by 20% year on year.

And both Motorola and Ericsson plunged into the red - for the first time in decades, as far as the Swedish firm was concerned.

Shares in all three have tumbled since the peak of the tech boom in April 2000; Ericsson, the feeblest performer, has lost 81% of its value since then.

All three have shed jobs by the tens of thousands.

Ericsson, for example, ended 2001 with 20% fewer staff than it had 12 months before, having disposed of 20,000 workers.

No pain, no gain

But the pain of 2001 may just have done all three firms some good.

The Nokia 7650
The Nokia 7650: Also makes phone calls

Results from all three were better than market expectations - spectacularly so, in the case of Nokia, whose shares rose by 10% on Thursday after the announcement.

First, there is the assumption that the companies have slimmed down enough to produce serious earnings growth in the future.

Much of last year's losses were accounted for the by costs of restructuring, closing excess capacity and paying off sacked workers.

Ericsson, which says its longstanding efficiency programme is finally bearing fruit, has already cut its operating costs by 20%.

Selling more...

Second, there is considerable scope for optimism on overall sales.

Ericsson said its global forecasts remained unchanged, pointing to annual growth of 20-25% for the mobile market as a whole.

After the gloom of the year-end, many economists are already spying the end of the global recession, with indicators pointing upwards again in the United States and parts of Europe.

More to the point, demand could surge even without strong economic growth.

Recent retail data indicate strong sales for consumer gadgetry - Sony's results, also announced on Friday, showed a leap in sales of games, audio products and home entertainment.

Over the past year, the big three mobile firms have ploughed billions of dollars into producing phones that play games and music, or act as mini-computers.

These innovations are a world away from the mini-advances - text messaging, fancy ring tones and so on - that started to bore consumers last year.

... charging more

Third, the big firms do not even necessarily need to sell more phones to make more money.

Looming around the corner is the introduction of high-speed third-generation (3G) mobile networks.

3G, which allows users to access a range of multimedia services, has already started in Japan, and should soon be rolled out across Europe and beyond.

Ericsson's Smartphone
Phones have become objects of desire

Doubts - massive doubts - remain about the economic viability of 3G networks.

But for phone makers, they will prove a bonanza, as expensive new handsets are required, and many are already worried about a shortage of suitable phones.

Even while the technology is in its infancy, Ericsson - the market leader in 3G phones - says it is earning enough from the technology to compensate for slowing traditional handset sales.

Not enough for everyone

But the modest optimism around Nokia, Ericsson and Motorola looks less likely to spread to other firms in the mobile industry - mobile operators such as Vodafone, and technology suppliers such as Toshiba.

People may be prepared to change their phones more often, but the rapid growth in overall subscriber numbers is topping out, especially in the near-saturated markets of Western Europe.

As an alternative, the Vodafones and T-Mobiles are trying to squeeze out more revenue per customer, and have their hopes pinned on 3G as a source of new income.

But most previous attempts to get mobile subscribers to pay more have floundered, amid the general expectation that mobile charges should fall over time.

And while it may cheer Toshiba, Texas Instruments and so on that more of their chips will go into the growing number of mobile phones, they have terrifying problems of their own.

In the leaner, tighter mobile market of 2002, it seems there's not quite enough jam for everyone.


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See also:

24 Jan 02 | Business
Nokia sets up for big year
23 Jan 02 | Business
Carphone Warehouse warns on profits
23 Jan 02 | Business
Siemens returns to profitability
23 Jan 02 | Business
Motorola losses mount
31 Dec 01 | Business
UK mobile phone sales slump
12 Dec 01 | Business
Hoping for lower mobile bills?
11 Dec 01 | Business
Nokia predicts strong growth
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