Wireless phone firms ride a wave on Wall Street
Investors drive wireless industry stocks to new highs as the prospects for wireless data services improve and handset sales take off.
Shares in Finnish wireless phone firm Nokia closed at a new 52-week high today as several investment banks raised their ratings on the company. Nokia said it expects sales to rise as much as 40 percent next year during an analyst meeting late last week.
Shares of Sweden's Ericsson and U.S.-based Motorola also surged to new 52-week highs today on new analyst reports that highlighted the industry's growth prospects.
The gains, coupled with Qualcomm's year-long climb and AT&T's decision to issue a wireless tracking stock, serve to highlight the market boom for all things wireless and the potential for new mobile Net revenue, according to analysts.
Falling service prices, increased worldwide network coverage and faster-than-expected phone sales--particularly Web-ready handsets--have contributed to the recent boom, analysts said.
"What's driving both the handset manufacturers and service providers in stock price is the realization that the wireless networks really can and will serve as high-speed Internet platforms," said Elliott Hamilton, senior vice president of wireless for Strategis Group, a telecommunications market research firm.
For example, a study released today estimates there will be nearly 24 million wireless data users by 2003, according to Cahners In-Stat Group. The availability of newer, high-speed transmission technologies will drive wireless data usage over the next 18 to 24 months, Cahners said.
The research firm estimated wireless data services will be used by 9 million business customers in three years, up from just 784,000 in 1999.
Many analysts see the wireless adoption rate growing quickly as fees fall across the globe and networks are rapidly constructed, particularly in developing nations such as Mexico, Brazil and the Philippines.
"It's taken the world 15 years to get to 428 million subscribers, but it's going to take it only five more years to more than double that," Hamilton said. That's what the stock prices are reflecting."
Hamilton said he expects 1 billion worldwide mobile phone subscribers by 2004. But Nokia told analysts last week that it expects 1 billion wireless users across the globe by the end of 2002, a year earlier than the company's previous estimates.
Wireless research firm Herschel Shosteck Associates has raised its phone sales projections three times this year.
"At the beginning of the year we expected 205 million handsets to be sold in 1999. We're now at 280 million to 300 million and the only reason why it wouldn't go to the high end of that range is a shortage of components," said company president Herschel Shosteck.
Many investment banks issued revised financial forecasts for the wireless equipment makers today. Merrill Lynch raised its growth rate projections for the industry and ratcheted price targets higher for Nokia and Ericsson, reiterating a "buy" rating for both stocks.
"Nokia's analyst meeting last Friday was very positive and more aggressive than we had expected. The outlook for the industry as a whole is improving, particularly in the long term," Merrill analysts Anita Farrell and Adnaan Ahmad wrote in a report today.
Nokia shares gained nearly 9 percent to finish at 176.44 today. Motorola added more than 5 percent to close at 130.64, while Ericsson received a nearly 8 percent boost to end the day at 59.31. Qualcomm stock also added nearly 3 percent today.
In addition to the high-growth rates among first-time mobile phone users, analysts say so-called replacement rates are rising quickly. Many existing cell phone users are buying newer phones with the latest functions and abilities, analysts said. Shosteck estimates the replacement rate has jumped to 40 percent from just 17 percent not long ago.
"Nokia, of all the phone makers, is best positioned to take advantage of this because they have more models and because of their buying power, they have access to more components," Shosteck said.
The rise in handset sales has lead firms to scramble for phone parts, according to analysts. The larger mobile phone manufacturers, such as Nokia, Ericsson and Motorola, have been able to weather a shortage in certain components, particularly batteries and displays, analysts said.