Wireless Phone Business Getting Static
The wireless phone business, one of the hottest stock sectors of the last year, suddenly seems to be finding bad news on more than a few channels.
Qualcomm Inc., one of the leaders in wireless technology, has seen its shares crumble in recent weeks on concerns about slowing demand for phones in Asia. The company announced layoffs on Thursday, though it said they were unrelated to demand.
More troubling for many investors were comments Thursday by the president of Sweden’s Ericsson, the biggest maker of equipment for wireless phone networks.
President Kurt Hellstroem warned in the Swedish newspaper Dagens Industri that wireless industry growth may slow because consumers could refuse to pay higher prices for fast Internet browsing and video with mobile phones.
Phone companies probably will spend more than $100 billion on government licenses to sell the services, and as much as $200 billion to build new networks. Passing those costs to customers may curb demand, Hellstroem said.
“It’s obvious that growth in the cellular market runs the risk of being damped as a consequence of the high charges,” he said.
Ericsson’s shares tumbled in Sweden, and its U.S.-traded shares (ticker symbol: ERICY) also fell, down $1.38, or 6.9%, to $18.69 on Nasdaq.
The news pulled other stocks in the wireless phone sector down as well. Nokia (NOK) slid $2.13 to $48.25, Nextel Communications (NXTL) dropped $5.13 to $56.06 and Motorola (MOT) was off 81 cents to $29.31.
“There has been an assumption that demand for new generations of cell phone and other telecommunications equipment was going to stay in this steep, uninterrupted growth curve,” said Henry Asher, president of Northstar Group Inc., a money manager that oversees $150 million. “Ericsson’s announcement calls this into question.”
In Europe, 14 countries are selling so-called third-generation, or UMTS, licenses that will allow customers to download moving pictures from wireless networks onto telephones and other mobile gadgets.
Besides paying for the licenses, the phone companies also have to build networks to transmit the information to customers.
Some industry officials have warned that the price is too high.
There’s “a big unknown about just what demand there will be for these new services and how they will be priced and whether people have overpaid,” said Graeme Clark, a partner in the telecom practice at PricewaterhouseCoopers. “For certain companies, I think this has now become an act of faith.”
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Knocking Nokia
Investors have clipped shares of wireless phone giant Nokia (ticker
symbol: NOK) in recent weeks on concerns about the industry’s growth prospects. Monthly closes and latest:
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Thursday: $48.25, down $2.13
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Source: Bloomberg News
