The quarterly earnings data is in! A quick tabulation shows that the wireless industry is going through a mini-boom, and that just might be a harbinger of bad things to come. From Texas Instruments to RF Micro Devices to Nokia, to Cingular, AT&T and Sprint, everyone posted better than expected earnings for the third quarter of 2003.
Read between the lines that the third quarter mini-boom might be a one-off event which is being fueled by the wireless number portability. On November 24, when the number portability goes into affect, the wireless services business is going to enter a Darwinian phase that threatens to weed out the weakest. I address this issue in my recent Business 2.0 article, Take this number and run. (Download PDF file.)
bq. The advent of “number portability” is good news for any cell-phone user who has angrily sworn that he’d change carriers in an instant — if only that didn’t entail changing phone numbers as well. It’s less good news for wireless carriers, because it may well push several of the weaker players over the edge.
In this article, I contend that the increase in the churn, or wireless customer infidelity unleashed by the number portability is going to upset the delicate balance between cash flows and the debt servicing abilities of many carriers. As a result, many are desperately trying to get their customers to resign or attract new customers with really ludicrous offers. News media has been chockfull of such fantastic deal stories. Some are giving away the $250 dollar Sony Ericsson T-610 or T-616 handsets for free these days if you sign up for a phone service. Arm wrestle with your provider and you could walk away with a bonus 1000 minutes or in my case, unlimited GPRS access for free just to stay with the service.
The point is, that the service provider hustle is the main reason you are seeing a huge demand for new phones from the likes of Nokia and Sony Ericsson. Samsung is rocking as well. Strong demand for handsets has boosted demand for chips from two key vendors at the very least Ò Texas Instruments and RF Micro Devices. ARM, which provider the intellectual capital for the TI-processors has been posting great numbers for past few months. However, when the wireless number portability is about three months old, you are going to see a sharp decline in the demand for phones which is going to put pressure on earnings of the same companies which are experiencing happy days.
As an aside, I read in a recent research report that at present the forecasted demand for handsets for 2004 tops out at about 450 million handsets, but the total production is slotted to be around 700 million handsets. Oversupply? That cannot be good news for the makers of chip-sets and even hand-sets.