Alcatel has announced mobile handset sales for Q1 will be below target.
French telecoms equipment firm Alcatel has announced that its sales of mobile handsets in Q1 2001 are expected to be lower than in Q1 2000, dragging total sales growth well below forecasts. However, it still expects to hit its earnings targets because profit growth in its other businesses has been stronger than expected. Alcatel also expects to get back on track later in the year: full-year sales growth is still expected to be 20-25%, with earnings growth of around 40-50%.
It’s no surprise that Alcatel’s handsets division has taken a hit. All the major handset players have run into problems recently, as consumer demand has slowed. Penetration rates in many European markets are approaching saturation, while many users are put off upgrading their handsets because of the impending arrival of higher-bandwidth GPRS devices. Market leader Nokia expects profits to stay flat, whilst its rivals are doing even worse.
However, Alcatel’s overall revenues won’t be hit very hard by a slowdown in handsets: the division only accounts for 7% of its sales. And the rest of its business is still on track for success. Unlike optical networking market leader Nortel, Alcatel doesn’t expect its network equipment operation to experience reduced sales growth. Since the majority of its business comes from Europe, the US slowdown is unlikely to hit it as hard. It is poised to benefit strongly both from mobile operators upgrading to 3G and from ISPs moving up to ADSL connections, with a 45% share of the ADSL market.
But the handset business certainly looks weak. It doesn’t have the brand strength or the scale of Nokia or Ericsson; nor does it have the experience in mobile computing devices that is expected to make Asian players like Matsushita and Samsung serious contenders in 3G handsets. Leaving the business would be a serious move, limiting Alcatel’s ability to provide end-to-end communications solutions. Even so, it may still be in the company’s interests to reconsider the move it first planned in 1995 and sell the unit off.
