Wireless Data Attracts New Handset Vendors

The recent flurry of acquisitions and partnerships among handset vendors as well as new players from other industries are signs that wireless data is changing the vendor battleground. How that might affect carriers' ability to differentiate themselves remains to be seen.

For vendors, pressure to keep costs low and volume high could keep handset prices from inflating dramatically, analysts said.

"Margins in the handset business are under extreme pressure," said David Kerr, Strategy Analytics senior industry analyst. "The top three or four vendors can achieve margins at the levels they desire, 10%, but below these, it is a difficult proposition. More importantly, vendors need the global volume and the ability to use the same chassis across its portfolio given the need to introduce 15 to 20 products annually."

Carriers must assess a vendor's production and marketing capabilities and, more importantly, its relationships with its components suppliers, Kerr said.

"The real issues are production capacity of their preferred vendors, (their) ability to secure exclusives or at least timely supply of the latest new models (and) develop data-centric and ultimately wireless multimedia devices," Kerr said. "The dark cloud is component supply, but we see this as a short-term problem."

But carriers are concerned that fewer vendors means less opportunity to differentiate themselves.

"This is bad news for carriers," said one carrier spokesperson.

The handset business can be cutthroat. Giants such as Sony and Philips dropped out after failing to earn significant market shares. Siemens is set to buy Bosch's handset business, and others are struggling. Cellstar, for example, failed to meet 4Q99 earnings estimates and blamed its inability to meet demand on component manufacturers underestimating the demand for wireless handsets. Even so, others are moving aggressively to secure shares of the wireless-data market on the eve of 2.5G.

Kyocera, for example, recently became Nextel's second handset supplier after the carrier said it wanted to differentiate its product offerings. Kyocera also purchased Qualcomm's handset operations after besting rival suitors that included Alcatel, Motorola and Siemens.

"3G licensing worldwide does open up new battlefields for market share and represents an opportunity for Korean and Japanese vendors, who largely missed GSM, to establish a presence," said Kerr, adding that the CDMA market is saturated with at least a dozen handset vendors. "However, we expect Ericsson, Motorola, Nokia and Samsung to continue to lead in terms of global market share over the next five years."

Qualcomm likely will continue to play a significant role. Kyocera, for example, agreed to buy the majority of its handset chipsets and system software from Qualcomm for the next five years. That Qualcomm stipulation might have caused other vendors to shy away, analysts said. Paine Weber analyst Walter Piecyk estimates that phones with Qualcomm's CDMA technology will grow from 18% today to 85% by the end of the decade. He also projected that Qualcomm shares will double their value for the second time in consecutive years and soar north of $1,000. Qualcomm alumni also abound: William Son, chairman, CEO & president at upstart NeoPoint, ran Qualcomm's CDMA operations in Korea for several years.

Meanwhile, wireless data has begun attracting outsiders. Dell's plan to market Research In Motion's Blackberry pagers likely is just the first of a wave of companies hoping to secure a share of the wireless-data market, analysts say. But barring a revolutionary 3G handset, few foresee upstarts supplanting Ericsson, Motorola, Nokia and Samsung.

"Market power will continue to reside with handset-centric vendors as the market, for the foreseeable future, will be dominated by low-bandwidth 2G and 2.5G services," Kerr said.

At the rate vendors drop in and out of the handset market, it's tough to keep track of who's still a player. How many vendors do you remember?

If three of these companies ring a bell, you're probably fairly new to wireless and still pretending you know what CDMA is. If you recognize 10, you're likely a middle manager on your way up. If you recognize all 21, you're probably glad Qualcomm is part of your 401(k) as you tour the RV show.

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