The number of handset shipments continues to exceed industry expectations as emerging markets drive demand abroad, while data services, youth-market penetration and family plans boost wireless adoption in the U.S. Early Wednesday, Bank of America analyst Tim Long increased his forecast for global handset shipments for this year and in 2006, the second analyst in a week to raise his expectations. The change in tone comes despite industry expectations for a deceleration in the rapid growth of wireless phones after this year.
In a note, Long boosted his estimate to 795 million phones this year, and 900 million units next year. He previously estimated shipments of 775 million in 2005 and 872 million in 2006.
“New subscriber growth won’t quit,” Long said.
Much of the strength comes from emerging markets such as Russia, India, China and Latin America. Long believes those regions are seeing stable growth, which should be bolstered by many new, higher-end products slated for the second half.
Handset makers such as Motorola Inc. (MOT) and Nokia Corp. (NOK) are expected to see higher shipments, especially as the industry pushes new products and sees a slightly stronger inventory replenishment cycle, he said. Nokia recently traded at $17.62, up 34 cents, or 2%; while Motorola rose 20 cents, or 1%, to $18.42.
Higher handset shipments should also help companies that make semiconductors for handsets. Long highlighted Micrel Inc. (MCRL), up 0.4%; Semtech Corp. (SMTC), up 0.2%; National Semiconductor Corp. (NSM), up 0.5%; and Power Integrations Inc. (POWI), up 2.9%, as beneficiaries. While the analyst doesn’t own shares in any of the companies he covers, Banc of America has an investment banking relationship with some of the companies.
Long’s comment echoes a Lehman Brothers note issued Thursday. In the note, analyst Blake Bath significantly increased his estimates for U.S. net wireless additions for 2005 through 2008. Bath said three major factors – youth-market penetration, data services, and the substitution of a wireless phone for a traditional one – were the reasons behind his continued optimism.
“We believe that penetration of the youth market is the number-one driver of wireless growth,” Bath said.
While many were expecting slower growth after several years of expanding at a torrid pace, these factors will likely fuel growth for the next few years.
“We continue to see very solid growth in the wireless industry,” said David Steinberg, chief executive of InPhonic Inc. (INPC). The company sells wireless phones and service plans over the Internet. “I think you’re going to see another net-add year for the carriers.”
Over the next few years, that growth may also be driven by the introduction of mobile virtual network operators, or MVNOs, which lease a carrier’s network to provide wireless service. An example is Virgin Mobile, which has already seen success in its youth-oriented prepaid business. These MVNOs offer alternative-service plans such as the prepaid model, or go after niche customers such as ESPN’s planned service offering.