Large inventories and lower-than-expected demand for cellular telephones, particularly in the U.S. cellular phone market, meant slower growth in 1995 for molders serving telecommunication companies. Mark Schaefer, vice president of sales and marketing for Mc-Kechnie Plastic Components Inc. in Minneapolis, said he is seeing some slowdown in telecommunications business due to inventory corrections.
``I see telecommunications picking back up going into the first quarter [of 1996] and becoming even stronger in the second quarter,'' said Schaefer.
Greg Layne, president of InteSys Technologies Inc., a molded components supplier and contract manufacturer to the telecommunications industry in Gilbert, Ariz., said he is not expecting the industry to be as robust in 1996. He attributes that to a ``lot of inventory buildup due to overestimating growth.'' InteSys is a major supplier to Motorola Inc.
In 1994, Motorola had the largest share of the cellular phone market worldwide with 32.5 percent, according to various industry sources. Finnish cellular phone maker Oy Nokia runs a close second with a 21 percent global market share. Nokia has doubled its output of cellular phones in each of the past four years, capturing some additional share from Motorola. In 1995, Nokia opened a U.S. manufacturing plant in Fort Worth, Texas.
Behind Nokia is Swedish manufacturer Telefon AB L.M. Ericsson, with a 10.9 percent market share in 1994. Ericsson reported a 30 percent increase in orders and a 33 percent jump in pretax profits for 1995's third quarter.
If the U.S. market is sluggish, demand in Europe and Asia remains strong. Analysts credit this to a widening gap between the rapid expansion of new-generation digital cellular systems in Europe and Asia, and the older-generation analog cellular equipment still prevalent in the United States.
``Last year we thought the cellular industry would boom,'' said Layne. ``It grew, but not as much in 1995 as was anticipated.''
Layne said the company is planning on 20-25 percent growth in its telecommunications business as opposed to the 50-70 percent growth experienced a few years ago.
McKechnie's Schaefer said he expects the onset of so-called personal communication service programs will fuel the growth in coming years.
``PCS will be the next wave of telecommunication,'' he said.
They are multifunctional, hand-held, computerized telecommunications devices, typically with telephone, fax and modem capabilities.
For molders, this means new hand-held instruments that translate into a complete new infrastructure, including new molds. McKechnie currently serves markets in the United Kingdom, the United States and Europe. It continues to investigate the Pacific Rim.
Although some molders produce components for equipment going to Asia, Layne said that in the short-term Asian demand will not affect growth in the cellular phone market. Long-term, however, he expects more cell phones will be produced in Asia.
``Seventy-five percent of our growth will come internationally rather than domestically,'' said Layne. ``We as a supplier will have to sign up to that challenge. It's something we're thinking about and must address.''
Layne is more optimistic about the U.S. cellular phone market than others.
``As [cellular telephones] become more of a consumer product, the cellular industry will change to become a consumer product rather than just a business product,'' he said.