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Wednesday, June 20, 2001
Struggling industry could create local silver lining
By Leah Bower
The world's largest mobile-phone makers are adjusting to a painful new reality: Consumers are happy with the phones they already have.
The slowing demand has rattled stock markets, led to massive layoffs and inspired significant changes in business strategy and production. The latest blow came this month, when world leader Nokia stunned European and U.S. investors with a June 12 profit warning for the second quarter of 2001 and watched its stock value plunge 19 percent that day.
But Czech electronics makers say there's a silver lining to the world's telecommunications turmoil. As the giants of the mobile-phone industry retrench, refocus and look to cut costs, more business is likely to come calling here.
Several mobile-phone makers are outsourcing production to cut expenses, and the Czech Republic has just what they need: highly skilled workers, low production costs and a central location, said Jan Slaby, a telecommunications analyst with Prague's Wood & Co.
It's already happening in places like Kladno, where a nearby factory was recently sold by Sagem, a French mobile-phone company, to Canadian component-maker Celestica.
"[Nokia's problems] could be a big help," said a Celestica marketing employee who declined to give a name. "Celestica has quietly broadened production here in the Czech Republic. We think we'll get more business."
Japanese manufacturer Matsushita Communication Industrial is also moving forward on a new plant in Pardubice's industrial park, said Michal Kolacek, the east Bohemian town's deputy mayor. The firm plans to start manufacturing Panasonic mobile phones by March or April 2002.
Mobile missteps
The cell-phone industry is merely maturing, experts say, the same way the personal computer market did once most consumers owned a PC. Today, most mobile-phone sales are coming from customers who replace their old phones. But they've been increasingly reluctant to do so.
Experts say there are several factors. Consumers are waiting on a new generation of faster GPRS, or general packet radio service, handsets. Global economic doldrums also have consumers holding back on purchases. Plus, many carriers have stopped subsidizing their customers' phone purchases the way they used to.
Manufacturers also had been looking to new technology, such as WAP (wireless application protocol) and third-generation mobile networks called UMTS, to lead to sales of new handsets loaded with Web access, data transfer and other bells and whistles.
But WAP didn't take off as expected. With few specially tailored Web sites available for customers to surf, interest -- and handset sales -- dropped off.
And UMTS networks, which would let mobile service providers offer high-speed data transfer, Internet connections and other services, have yet to get off the ground on the Continent.
In some countries, the high cost of bidding on the new UMTS licenses has left phone companies strapped for cash and unable to offer new services, while other auctions, such as those in the Czech Republic, are still pending.
The consequences have been felt across the globe. Sweden's Ericsson recently announced it would lay off 10,000 employees after posting, along with Motorola, a major profit warning in the spring.
France's Alcatel, whose chunky mobile phones are scattered throughout Prague, has already outsourced all of its phone production. Netherlands-based Philips Electronics is contemplating stopping phone production altogether. Nokia, which seemed to be weathering the storm, dropped its bomb by saying its sales are expected to grow "somewhat below" 10 percent, as opposed to its earlier predictions of 20 percent.
"There has been some softness out there in general in the handset business. But when it hits market leader Nokia, I think it drives the point home pretty quickly," SG Cowen analyst Scott Searle told Dow Jones newswires.
Slaby said that for now, the Czech Republic isn't contributing to the worldwide decline in mobile-phone sales. The key is penetration rates, which are soaring as high as 80 percent in Norway and Sweden.
The Czech Republic and other Central and Eastern European countries are lagging behind, according to a report by Wood & Company, with Czech penetration rates sitting at about 42 percent last year, up from 19 percent in 1999.
That means there are still customers without phones, as well as time before the country's telephone monopoly fully dissolves.
"We're a small bright spot for handset manufacturers," Slaby said.
Leah Bower's e-mail address is lbower@praguepost.cz
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