The Woes of the Handset Gallery

When times get tough, the solution is to outsource, cut jobs and forecast low sales for the coming year. These are the sentiments of the top three handset manufacturers. Financial analysts have kept the industry buzzing on what bad news could come next. But most of the talk has some thinking it's been a whole lot of hype.

“I don't agree with the popular theory going around that the handset market is currently dormant. It's not,” said Ray Jodoin, Cahners In-Stat (www.instat.com) group manager & principle analyst. “We're looking at the whole industry from a pretty myopic standpoint.”

Assuming that because a manufacturer missed its target by 30,000 handsets, the market is in the tank, could be considered jumping the gun. The growth in the handset market still is extremely strong.

“We sold 410 million handsets in 2000,” Jodoin said. “I still maintain the numbers are going to be somewhere in the 525 to 550 (million) range this year,” he said, adding that the growing markets in China and Brazil will help drive that figure.

Even if the numbers look good, handset manufacturers are having a difficult time justifying the time and effort it takes to output a variety of models.

“All of the major manufacturers are having to concentrate on next-generation handsets and on developing the infrastructure,” said Ken Hyers, Cahners In-Stat industry analyst. “So there's less of an incentive for them to concentrate their efforts on low-margin, second-generation devices.”

With the three major handset makers scaling back (see “The Lowdown on the Slowdown”), other manufacturers have an opportunity to shine — albeit cautiously. Audiovox (www.audiovox.com), which has been the No. 4 manufacturer, took measures to withdraw from the analog business and is focusing on 2G Web-enabled products and PDAs. Although its growth looks promising, Audio-vox's fourth-quarter report indicated a slow first half of fiscal 2001 as a result of the economy and new product introductions.

Kyocera (www.kyocera.com), Mat-sushita (www.panasonic.co.jp/global/top.html) and Samsung (www.samsung.com) are other manufacturers that could move up.

The Lowdown on the Slowdown

Here's a recap of what's happened to the top three handset manufacturers in recent months:

• Nokia (www.nokia.com) has shifted some of its phone manufacturing from its Texas factories to its facilities in Korea and Mexico. As a result, Nokia has plans to cut 800 jobs. One of the factories has been subleased. The other now is focused on more engineering support for the Americas and fulfillment for the U.S. market but continues to manufacture mobile phones.

• Ericsson (www.ericsson.com) has outsourced its phone production to Flextronics (www.flextronics.com). Ericsson now focuses on R&D, sales and marketing.

• Motorola (www.motorola.com) has plans to cease manufacturing operations at its Harvard, IL, campus by June 30. As a result, Motorola has cut 2,500 manufacturing positions. The campus now has shifted the operational focus to customer order fulfillment and new-product sourcing for Motorola's personal communications sector.