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Ericsson paces wireless stocks

Shares of wireless handset makers and the suppliers to those companies surge on talk that the sector may have reached bottom.

Shares of wireless handset makers Ericsson and Nokia gained Tuesday, and suppliers to those companies such as TriQuint Semiconductor went along for the ride.

Investors boosted shares across the board, with Ericsson up 20 cents, or 4 percent, to $5.45. Nokia shares rose as high as $20.02 before falling to $19.23, down 14 cents.

ABN AMRO upgraded Ericsson but downgraded Nokia. According to recent reports on Texas Instruments and TriQuint Semiconductor, tough times for wireless companies could be nearing an end.

Gains in wireless component makers like Texas Instruments, up 8 cents to $34.86, and TriQuint, up $1.11 to $23.21, helped vault CNET's Wireless index up about 2 percent.

This isn't the first time in recent months that analysts have bandied about a bottom in the sector. Shares in wireless handset makers also rose in late July after the sector, which has been one of the worst performing amid the economic slump, showed improvements with companies' second-quarter reports.

But a series of research notes gave more details of the much-anticipated nadir in demand.

ABN AMRO analyst Rob Bate on Tuesday predicted improvements for Ericsson based on a clearing up of internal problems, improved cash flow and most importantly, a pick-up in demand for wireless infrastructure.

Bate raised the stock to "buy" from "add" based on these factors, along with the company's valuation. After months of decline from its 52-week high of $21.12 per share, the company is up just slightly from an all-time low of $4. Bate said the company has an "intrinsic value" of $6.23 per ADR (American Depository Receipt).

"We expect a clear pick-up in demand for wireless infrastructure in late 2002," Bate wrote. The growth will be driven by emerging markets such as China and areas such as GSM (Global System for Mobile Communications), CDMA (code division multiple access) networks and third-generation devices.

At the same time, Bate said, tough times are ahead for Nokia, and he downgraded it to "add" from "buy."

"We believe that weak demand in the sector, especially in Europe, will have a negative effect on the company," Bate wrote. He said the company isn't likely to make its third-quarter targets, especially in revenue.

A recent rebound helped lift Nokia shares from their 52-week low of $16.90 per share.

The rebound may be due to signs of a pickup in demand, coming from companies that make semiconductors for wireless products.

"Field checks have indicated signs of increasing production at Texas Instruments, primarily of wireless segment components," wrote Wit SoundView analyst Scott Randall in a research note. Randall also noted that major equipment manufacturers such as Nokia and Ericsson are now at target inventory levels, a sign that the disrupting swings in inventory may finally be settling down.

The news provoked the analyst to reiterate a "strong buy" on Texas Instruments. It also inspired predictions that demand for wireless semiconductors is likely to pick up even more in the second half of the year.

SG Cowen Securities analyst Mark Grossman on Tuesday issued a bullish note on TriQuint Semiconductor that touted normalized inventory levels and a recovery in demand for wireless components.

"With inventories in the cellular industry now generally down to reasonable levels, we believe that TriQuint's wireless business will bottom out this quarter, with growth resuming in the December quarter," he wrote.

The analyst also said that predicted growth in CDMA handset sales--expected to increase from about 75 million units in 2001 to more than 100 million units in 2002--was a reason for his reiteration of a "strong buy" on TriQuint. Ericsson and Nokia both use the company's components, as does Motorola.