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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 2, 2004
Why UTStarcom Is a Telecom Star [Page 2 of 2] Q: Now that the economy is recovering, a lot of your competitors hope to grow again as well. How likely is that? A: Recently, a lot of traditional equipment providers have shown some optimism. But if you look at projections for 2004 and 2005, global capital spending for telecom equipment isn't increasing. We've done some analysis on global capital-spending trends. It turns out that Western Europe is the largest telecom-equipment market, with about $60 billion spent in 2003. It will go up to maybe $61 billion in 2004 and then probably stay flat through 2005. The U.S., with $35 billion spent in 2003, is the second-largest market. The projections are for that market to remain flat. So we're anticipating a very competitive market. Q: Why is spending on phone equipment not growing? Is it because of consolidation among service providers? A: There certainly appears to be consolidation in the industry, such as the recent merger between wireless service providers Cingular and AT&T Wireless (AWE ). And we think there will be more consolidation at the service-provider level -- and that it will flow through to equipment providers. Also, carriers are still very much focused on profitability and return on investment. They can't just roll out technology for technology's sake. That's why you aren't seeing huge growth in capital spending right now. Q: Utilities and cable companies are starting to provide telecom services. Could that help boost phone-equipment demand? A: The cable companies don't have much of an inroad outside of North America. In China, some of the utility companies are trying to enter the communications market, and they've had some initial success. But telecoms still spend the vast majority of money on equipment. Q: You mentioned consolidation among suppliers. How do you plan to participate in that? A: We've got tremendous organic growth. But there may be some merger and acquisition opportunities that will help the company grow even faster and create more value for our shareholders. We acquired the assets of CommWorks from networking company 3Com (COMS ) a year ago. And we're looking for additional products and technologies that we might be able to run through our sales channels in markets such as China. Q: What do you expect to happen on the handset side of your business? A lot of analysts expect you to lose some of your market share this year as local Chinese manufacturers ramp up. A: Several years ago, UTStarcom was reluctant to enter the handset business. We were an infrastructure provider. But we didn't see anyone else offering PAS handsets. So we got into that market to help support our infrastructure sales. We're [now] very successful: We shipped more than 16 million handsets last year in China -- probably no other manufacturer shipped more handsets into China in 2003. We held about a 70% market share on those handsets last year. And PAS has turned out to be very successful. We went from 12 million subscribers at the beginning of 2003 to 35 million by the end of the year. PAS subscribers are projected to grow to over 60 million this year. With this huge success, people are now seeing an opportunity in handsets -- and you're now seeing more competitors wanting to enter the handset market for PAS in China. So we don't think we'll be able to maintain a 70% market share, but we do feel that we'll be able to keep our market share in handsets above 50%. We have an advantage on cost. We've got the biggest family of products: We're introducing more than 20 new models in 2004. And we have the distribution -- the phones have to be sold to individual carriers, and there are more than 2,400 of those in China. Q: You're developing a dual-mode handset, which will work on PAS as well as GSM [global system for mobile communications], which is the mainstream wireless technology used in Europe. Are you planning to go more head-to-head with handset makers Nokia and Motorola? A: We aren't necessarily trying, at this point, to introduce stand-alone GSM handsets. We're just trying to capitalize on our strength in PAS. These handsets will serve the market in Taiwan, Vietnam, and China.
BW MALL
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