Western handset vendors turn Japanese

date: April 20, 2001 - source by: telecomasia.net

With the pending launch of the world’s first 3G mobile network in Tokyo next month, it seems the whole wireless industry is turning slowly Japanese. That's good news for struggling handset makers, but perhaps an ominous sign for market leader, Nokia.

In several recent reports, Ericsson, Motorola and Agere Systems, the microprocessor specialist spun off from Lucent Technologies, are rumored to be positioning themselves as partners of Japanese handset makers.

Ericsson has confirmed its talks to merge its loss-making handset division with Japanese electronics giant Sony Corp. The move has been seen as a lifeline to the Swedish vendor’s handset activities, which lost $1.58 billion last year and is projected to lose another $700 million in the first quarter of 2001.

Another rumor pits Motorola with another major Japanese company, Mitsubishi. The initial report by Nihon Keizai Shimbun says that the companies were planning to launch a handset joint venture to develop next generation handsets. While Mitsubishi and Motorola have denied the report, Mitsubishi has confirmed earlier talks on the same topic.

Yet another report suggest that NEC Corp. is in the last stages of securing a partnership with chipmakers, Agere Systems, as well as possibly Texas Instruments and Intel, also to develop next generation handsets.

The only notably names in the handset sector left out of the rumor mill are Nokia and Panasonic, and, to a lesser extent, Samsung and Siemens.

While Nokia is still considered by far to be the leader in the handset market, with close to 30% of the worldwide market last year, there is a clear indication that Asian handset manufacturers, with their strong electronics background, access to much needed components and their proximity to global 3G leader NTT DoCoMo, now represent a significant threat.

With both Ericsson and Motorola in the red, it comes as no surprise that they are turning to their Japanese counterparts for help. Already, both Ericsson and Motorola have given up making their own phones, electing to outsource most of their manufacturing processes to low-cost centers like Taiwan and Mexico.

The partnerships between Western and Japanese firms could pose a serious challenge to Nokia’s throne, simply because they combine the technology innovation of the Japanese market with the global infrastructure and logistics support of the Western players. This way, someone like Sony, who has so far concentrated most of its efforts on the domestic Japanese market, can design the phones with the latest technology and then leverage Ericsson’s global distribution channels to sell them overseas.

In addition, Asian carriers are expected to get a head start on their European rivals because they did not pay billions of dollars for their spectrum. Together, licensees in the UK and Germany paid in excess of $80 billion for their 3G licenses, compared with the combined total of less than $3 billion from three of the region’s biggest cellular markets – Australia ($570 million), Korea ($2 billion) and Japan (free).

"The low 3G licensing cost will benefit cellular operators in Asia-Pacific," said Evelyn Goh, analyst at Gartner Group. This would free up capital resources for the region’s carriers to roll out their networks and services.

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