WORLDWIDE HANDSET MARKET NOT GROWING OLD GRACEFULLY

Nokia''s reduced guidance for 2002 handset sales may be the result of a bad economy and a delay in third-generation services, but mostly the vendor''s results exemplify the reality that the handset market has reached its growth limit.

“In the handset market, what is very often forgotten is that the growth is now behind us,” said a spokesman for the company. Nokia estimates that the overall market volume for handsets will be up by between 5% and 10% in 2002.

Industry observers seem to agree that the handset sector has seen the worst of things. “The industry saw the bottom in 2001 because they were not prepared,” said A. Ozgur Aytar, an analyst for The Strategis Group. “Now at least they are aware of what the demand really looks like, and they are putting more emphasis on supply chain management.”

The handset market has matured and needs to be viewed as a fully developed space, said T.C. Robillard Jr., wireless equipment analyst with Salomon Smith Barney. “It is not that it is not profitable. It''s just not a growth market,” he said. Robillard does not anticipate a significant acceleration in the handset replacement rate.

Because there was a slight boost in handset replacements during the first quarter, Mark Roberts, wireless equipment analyst for First Union Securities, said Nokia''s handset guidance is questionable. “The real smoking gun here is that Samsung is taking market share from Nokia,” he said.

Samsung reported a gain in handset market share, some of which was attributed to GSM handset sales in Europe, which has been Nokia''s strength. Samsung''s handset sales rose 55% during the first quarter.

When Nokia cut its sales growth forecast for 2002 last week, its shares plummeted more than 12%. The company had lowered the expected growth rate to 4% to 9%, a significant drop from an earlier estimate of 15%. But the vendor is not worried about losing market share, according to the spokesman. Five years ago, Nokia''s market share was below 20%, and now it is at 37%, he said. Nokia''s long-term market share target is 40%, which it maintains is realistic.

Motorola said it expected its second-quarter handset sales to be higher than the first quarter and is expecting 2002 global handset shipments on the upper end of the 400 million to 420 million range.

While Ericsson lowered its expectations for handset sales, the vendor''s decision to cut its headcount by an additional 20,000 over the next year was more related to slow infrastructure sales. The company reported sales of about $3.6 billion, down 26% from first quarter 2001.