News

Life for makers of wireless communications devices is becoming tougher as competition intensifies and the industry focus shifts to emerging markets.

Both trends were cited this week in announcements from a small player and an industry giant.

In the smart phone market, Palm Inc. cut its forecast for second-quarter revenue and profit after the market closed Monday. Palm cited the postponement of the U.S. launch date of its Treo 750 for a delay analysts say it can't afford.

The broader cellphone market is also in flux. Nokia Corp., the world's largest cellphone maker, said Tuesday it expects worldwide shipments of mobile devices to slow next year. Over the past decade, wireless handset manufacturers have grown accustomed to la dolce vita.

Consumers, excited by the novelty of making calls on the go, went on a cellphone shopping spree. Sales of handsets in 2004 soared 30 per cent, according to Gartner Inc.

While demand is still strong, there just isn't the same appetite. Nokia, based in Finland, expects the industry's global mobile phone shipments to increase as much as 10 per cent from 970 million units in 2007. But that's a considerable slowdown from the 22-per-cent gain it forecast for 2006 and a 24-per-cent rise in 2005, although some analysts noted Nokia's forecasts can be “conservative.”

“There are certain markets that are slowing from historical numbers,” said In-Stat analyst Bill Hughes. “Still, 10-per-cent growth in any normal industry is great.”

Mr. Hughes expects 2007 market growth of more than 10 per cent and less than 22 per cent. “The wild cards are India and China,” he said.

Emerging markets like China and India, where fewer consumers own cellphones, now offer the greatest growth prospects. While Nokia expects industry shipments to Europe, Latin America and North America to rise less than 10 per cent in 2007, deliveries to Asia Pacific, China and the Middle East and Africa are also expected to advance.

But the growth in emerging markets comes from cheaper cellphones. Nokia lowered the operating margin target at its devices unit for the next one to two years to 17 per cent from an earlier forecast of 17 to 18 per cent set a year ago.

“It will be increasingly challenging because of the margin and average selling price pressure,” said Forrester Research Inc. analyst Charles Golvin, referring to the outlook for wireless handset makers.

Palm, based in Sunnyvale, Calif., faces its own challenges. The company had been expected to introduce its latest wireless e-mail device, the Treo 750 in the second quarter ending Nov. 30. Palm, however, said it won't bring it to the U.S. market until the fiscal third quarter, citing a delay in certification.

The holdup comes as competition intensifies in the smart phone sector. Research In Motion Ltd., maker of the popular BlackBerry, recently expanded into the consumer segment with its Pearl model. And larger rivals Nokia and Motorola Inc. have both made acquisitions in this sector. “Any delay like this is going to be good news for the competitors,” Mr. Hughes said.

RBC Dominion Securities Inc. analyst Mike Abramsky Tuesday lowered his estimates for revenue and share profit for Palm for fiscal 2007 and fiscal 2008. He also cut his price target for the stock.

BMO Nesbitt Burns Inc. analyst John Bucher cut his rating on RIM to “market perform” from “outperform.” While he still believes the company will benefit from its leading position in wireless e-mail services for businesses, he said the valuation isn't as attractive.

Palm's shares fell $1.18 to $14.19 (U.S.) Tuesday on the Nasdaq Stock Market. Nokia's shares closed down 22 cents or 1 per cent to close at $20.09 on the New York Stock Exchange, while RIM's stock slipped $1.46 to $151.85 (Canadian) on the Toronto Stock Exchange.