CIBC research on global handset sales
With our portfolio’s exposure to the mobile market (Airborne Entertainment, Bluestreak and Wmode in Fund III; Intrinsyc in Fund II), we try to keep up with what the key manufacturers are up to. Not to mention the consumer. Here is an upbeat note from CIBC’s U.S.-based research team:
Handset Market Update
Based on our channel checks and recent trip to Asia we believe the handset market is experiencing strong sell-in and sell-through trends. We see strong demand in every region in addition to still accelerating net adds trends in the two most populated markets – China and India. In addition, we believe the introduction of the iPhone has raised the competitive bar in North America with a positive byproduct of raising replacement rates.
With the strong trends in mind, we are raising our handset shipments target for 3Q07 to 290 million units (up 10.7% QoQ) from 282 million units. We expect positive fundamentals to continue throughout the rest of the year and 2008 and have raised our full year shipment targets to 1.13 billion and 1.26 billion, respectively. Main beneficiaries of the strong growth are Nokia (NOK-SP) and Samsung. We have raised shipments targets for both companies. Please see our OEM specific discussion below for additional color.
Handset Vendor Update
• Nokia – strong execution on all fronts with no glaring weaknesses. Nokia is taking share from Motorola (MOT-SO) in Asia (particularly China) and continues to benefit from strong growth trends in India and Latin America. We are also seeing Nokia continue to dominate Europe and hold its own in the Middle East and Africa. As a result, we have raised our unit estimates to
111.0 million in 3Q07 (up 10.1% QoQ). The N-series has clearly been a key growth driver especially in Europe and Asia. We expect Nokia’s upcoming Nseries handsets, including the feature rich multimedia N81 8GB and N95 8GB to strengthen Nokia’s position at the high end. The mid range 5310 and 5610 Xpress Music handsets should also support Nokia’s push into mobile music. Looking at Europe, our checks indicate the 6300, N73 and N95 continue to sell well and GPS usage is on the rise. We believe the Luna (8600) may emerge as a top seller. We expect new CDMA models to be introduced at Verizon (VZ-SP) and AT&T (T-SO) at the end of the year or early next year.
• Motorola – based on our checks and recent meetings with supply chain partners in Asia, we believe Motorola’s current business environment is mixed. Despite positive feedback regarding recent changes in its internal management and processes as well as materially mitigated
inventory issues, Motorola still faces challenges in Europe and Asia and the ramp of its newest products is mixed. While we still see flattish unit shipments in 3Q07 (targeting 36.5 million in 3Q07 vs. 35.5 million in 2Q07), the mix is improving in favor of newer higher margin and ASP models.
However, the sustainability of this mix without lowering ASPs on its new products has yet to be established. We believe Motorola’s new models (such as the RAZR2, ROKR Z6, RIZR Z3 and Q9) can account for as much as 10% of shipments in 3Q07. However, any sequential improvement in shipments is likely a reflection of lower inventories (sell-in) rather than a true change in
sell-through demand. We believe expectations should remain subdued.
• Samsung – based on our checks and recent meetings with the company, we believe Samsung is seeing strong 3Q07demand. We are raising our shipments target for the company to 43.5 million (up 16.3% QoQ) from 40.0 million and have ripple affected the increase through the forecast period. We also expect ASPs to move up sequentially as the second Ultra edition
handsets make a positive contribution after their 2Q07 introduction.
Similarly, operating margins could see a positive up tick. We believe the upside is coming in Korea (share gains vs. LG), Europe where some of its new HSDPA models are seeing traction (U700), and the US. We expect new touch screen models to be introduced in 4Q07 in Europe (F700).
• Sony Ericsson – new mid range and higher end handsets focusing on multimedia positions Sony Ericsson (ERIC-SP) to continue to gain traction, but we expect most of the impact to occur in 4Q07. While we are maintaining our 3Q07 target for 26.5 million units (up 6.4% QoQ), we see potential upside to our estimate. We believe the W910, W960, K850 will drive results with more contribution from the P1 and T650. We view Mr. Miles Flint’s stepping down as Sony Ericsson CEO citing personal reasons as negative. While he will remain as an executive adviser until the end of the year with Hideki “Dick” Komiyama, Chairman of Sony Electronics USA, taking over on November 1, his departure creates uncertainty. Despite the unexpected management transition, we still believe Sony Ericsson is well positioned with an impressive mid- and higher-tier portfolio. Where we are more cautious is with Sony Ericsson’s efforts to improve its position at the low end.
• LG – we believe LG’s quarter is moving in line with our expectations targeting around 22.0 million units (up 15.0% QoQ) in 3Q07. Based on our checks we believe LG is seeing strong demand in CDMA (Chocolate focus at Verizon) while demand for WCDMA is weak as AT&T and Hutchison 3 are in the midst of a product transition. LG’s growing focus on GSM is delivering
results with increased demand in Latin America and Asia. We expect LG to introduce three new touch screen devices in 4Q07 for AT&T, Vodafone and Verizon as well as a new generation of follow up models for the Chocolate and the Shine in 1Q08. As the Shine matures and as more progress is made in lower than average ASP and margin GSM handsets, we expect LG’s ASPs
and margins to decline sequentially.
• Research In Motion – we see strong demand for key RIM (RIMM-SP) products such as the 8830 at Verizon and Sprint (S-SP), the Curve at AT&T and strength in Europe (Carphone Warehouse, Vodafone) potentially contributing upside to our unit estimates. We are maintaining our estimate for around 3.1 million units for F2Q08 (up 30% QoQ). In our opinion, the iPhone has turned from a threat to a catalyst increasing store traffic and demand for e-mail devices with non-iPhone carriers positioning the Blackberry as the main smart phone alternative.
Pending new product launches in a range of form factors, price points and features (Wi-Fi, GPS,
multimedia) including the Pearl 2, bode well for the company as it expands into the consumer market.
(disclosure – I own RIM)