THE DAY AHEAD: Nortel eyes Europe''s wireless Net
While wireless Internet services are a bit raw in the U.S., Europe is auctioning off more than 60 licenses to build its Universal Mobile Telecommunications System (UMTS), or wireless Internet. And Nortel Networks (NYSE: NT) plans to capitalize on the buildout.
Europe's new mobile system will use third-generation (3G) wireless technology to give access to e-mail, video and a host of other Internet services. By 2010, 80 percent of Europe will be hooked up with the wireless Internet.
For its part, Nortel has been busy landing equipment contracts from European wireless carriers. On Thursday, Nortel won a $100 million contract from Airtel Movil SA, Spain's second largest wireless carrier. Nortel is also the principal supplier for BT Cellnet, a UK wireless carrier.
Lloyd Carney, president of Nortel's wireless Internet effort in Europe, said the company is looking to grow its global wireless Internet market share to 25 percent from the current 11 percent. With major carriers in Spain and the UK on board, Nortel is talking to major players in Germany, France and Italy.
If Nortel continues to land major wireless carrier contracts in Europe, it can meet its market share goal -- once wireless companies start building infrastructure they don't stop because new services keep emerging. Europe's UMTS market is expected to be a $36 billion market by 2003.
In August, Germany awarded licenses to Deutsche Telekom, Vodafone and four others. Italy will hold its auction in October followed by France, which will award its licenses in June 2001.
Nortel sees Europe's wireless Internet as a huge market. "Cell phones are much more part of the culture," said Carney in a phone interview from Paris. "The U.S. will catch up as rates come down."
What's most notable about Europe is the competitive landscape. Lucent Technologies (NYSE: LU) and Cisco (Nasdaq: CSCO) are no-shows in bidding for wireless Internet infrastructure in Europe. According to Carney, Ericsson (Nasdaq: ERICY) is the largest player in Europe and has a 30 percent market share. Nokia (NYSE: NOK) and Motorola (NYSE: MOT) are also in the early running on most bids.
"We're winning deals because we're able to build smart pipes," said Carney, who noted that Nortel's recent acquisition of Alteon Websystems helps the company's case with customers.
With Nortel's big push into Europe, it gets to work out any kinks before the U.S. starts building out next-generation wireless services. Carney acknowledges that Nortel will face more competition from the likes of Cisco and Lucent once the U.S. starts revving up its 3G push.
But Nortel should have a lot of momentum coming from across the Atlantic by time the U.S. gets up to speed.
National Semi's wireless focus pays off
It's amazing what a chip maker can do when it focuses on a hot market. National Semiconductor (NYSE: NSM) crushed estimates Thursday with first quarter earnings of 76 cents a share.
National Semi, which used to be a chip doormat, has been turning in stellar results as it concentrates on the wireless and analog communications markets. The company used to be at war with Intel (Nasdaq: INTC) and AMD (NYSE: AMD) in the PC chip market.
National Semi was upbeat about the future and said next-generation wireless devices will continue to fuel revenue growth. Like many wireless component companies, National Semi's growth is pegged to next-generation wireless services and devices. National Semi books about $1 in revenue per wireless phone. For future 2.5G and 3G phones, National Semi could see revenue in the mid-teens per phone.
Read-Rite reality check
Given the disk drive sector is sickly at best, Read-Rite (Nasdaq: RDRT) formed a fiber optic components company. To no one's surprise, shares soared Thursday.
The company -- Scion Photonics Inc. -- has $25 million in initial funding from Tyco Ventures and Integral Capital Partners. Scion also has access to Read-Rite's manufacturing capability. Sounds like a plan for a big spinoff.
But...
Scion isn't producing anything yet -- it has passed around a few prototypes of a dense wave division multiplexing filter. It will also compete with JDS Uniphase (Nasdaq: JDSU). However, execs reckon Scion can post $100 million in calendar 2001 revenue even though it won't record one sale until the first quarter.
If the company executes and has a successful manufacturing ramp of products, it can go from 0 to IPO just like other fiber optic companies. For a company that was just hatched, that's a big "if." TDAIN