Wireless-phone makers suffer summer fade

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A weaker U.S. economy and a financial pinch on consumers around the world is retarding sales of wireless phones for large vendors such as Motorola Inc. and Nokia Corp. and hurting their suppliers, analysts say. As a result, several brokerages have cut their forecasts for 2008 handset sales, and they predict stocks of mobile companies could languish through the end of the year.Take the latest forecast of Brian Modoff at Deutsche Bank. Citing a "handset meltdown," he cut his estimate for handset-unit shipments to what would be the mobile industry's lowest level in six years. In a report, Modoff told investors that shipments of mobile phones are now likely to grow no more than 6%, the second time he's trimmed his estimate in 2008. He began the year with a forecast of 11%, which he cut in February to 8%. "The chief cause to date has been the economic slowdown in the United States and weakening demand in Europe. Consumers are not buying as many new phones as they once were," Modoff wrote. Instead of buying new phones, analysts say, consumers are spending more money on gas, food and other essential commodities whose prices have risen sharply in the past year. In light of deteriorating global economic conditions, "near-term demand is weak and investor expectations need to adjust downward," analyst Ittai Kidron of Oppenheimer wrote in a note Monday. "We're seeing pockets of weakness," said Mark McKechnie of American Technology Research, although he pointed out that summer is typically a slow time for sales. Still, McKechnie downgraded Nokia to neutral from buy two weeks ago. Motorola, meanwhile, sustained another blow Monday when the brokerage Piper Jaffray cut its rating to a rare sell, saying that its checks with industry sources show the Chicago-area vendor is losing share in its home U.S. market. The damage also has been extended to companies that make components for the large manufacturers. It has gained nearly 22% in value this year owing to a steady performance. The San Diego-based company makes chips for phones that use its proprietary CDMA transmission technology. In addition, shares of Research In Motion Ltd. have risen more than 27% in 2008, with demand strong for its popular BlackBerry smart phone. Yet analysts caution that sales of expensive smart phones such as the BlackBerry, Palm devices and Apple Inc.'s iPhone represent just a small portion of the market. Pointing to a sharp decrease in the price of the updated iPhone, they say that smart-phone makers also face pressure. "Maybe we are too 2001 in our thinking, but when a company cuts prices and adds features usually that's a sign they are having trouble finding demand," Deutsche Bank's Modoff wrote. "That's for the coolest cell phone on the planet." End of Story Jeffry Bartash is a reporter for MarketWatch in Washington.