Is the industry beginning to feel the weakened economy?



Is the industry beginning to feel an impact from the weakened economy? 

Wireless chip giant Texas Instruments said it would cut back on financial forecasts because of weakening demand for high-end and 3G handsets. In particular one large customer, which many suspect is Nokia, made a "significant downward revision in wireless customer demand."

On the other side of the spectrum, Virgin Mobile USA, which services prepaid customers, reported a net loss of $14.7 million during the fourth quarter last year and announced fewer customers additions than expected. Virgin Mobile USA CEO Dan Schulman blamed "economic conditions" for the loss and warned that the conditions will continue to affect the consumer market and wireless industry during 2008. He also said that the company had fewer customer additions in fourth quarter because Virgin decided not to reduce its low-end handset pricing to match that of its competitors.

Then there is Verizon Wireless, which has assured analysts that its revenue growth would remain strong, but also hinted that the country's economic downturn is having a small impact on its wireless business. Verizon indicated that in parts of the country, particularly in the Midwest, some consumers hurt by the mortgage crisis are having difficulty paying their bills.

At this point, these examples seem to be isolated events and not an indicator that the entire industry is in danger yet. For instance, TI's competitors aren't experiencing the same slowdown. Virgin Mobile, which solely relies on prepaid services, is logically one of the first operators to be impacted by a recession.

But what if the economy struggles beyond 2008? Wireless may seem like a necessity for consumers at this point, but prolonged harder times means that eventually, spending on wireless services will wane. Of course, this has a ripple effect on both the handset market, as consumers avoid upgrading, and infrastructure industry as demand slows and carriers begin to delay spending. We saw this in 2002/2003. Infrastructure players are banking on a major transition to 4G/all IP networks in 2010, but they could be in for some hard times if their operator customers, experiencing a slowdown in 2009, decide to pull back on capital spending in 2010.-Lynnette

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