14 December 2008
Signals to Noise (S2N)
S2N #299 - India wireless
survey
Brian Modoff
Research Analyst
(+1) 415 617-4237
brian.modoff@db.com
Jonathan Goldberg, CFA
Research Analyst
(+1) 415 617-4259
jonathan.goldberg@db.com
S2N #299 - Its a small world
In this week's S2N we recount our retail and consumer handset survey in India
and Dubai, and report back from the LTE Americas Congress. We also reprint our
notes from Brightpoint and Starent.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Industry Update
Table of contents
Signals to Investors .......................................... Page 02
Sines of the Times............................................ Page 05
Industry Data .................................................... Page 12
Global Markets Research Company
India and Dubai Retailer Survey
Nokia remains the leading seller in our retailer seller. Smartphone vendors have
made a strong showing as prices have fallen and distribution improved. Sony
Ericsson is holding steady, a distant second. Motorola, LG and Samsung show
more mixed images and suffer from a limited range of products. Only Nokia has a
complete range of models available at every price point. The others tend to focus
on mid- to high-range offerings.
India Consumer Survey
We surveyed over 500 Indian urban cell phone users. Their opinions mirrored the
retail survey. We found that Nokia has the highest loyalty among consumers. The
only weak spot is with high-end consumers, but we think this will be addressed by
the wide range of E- and N-series phones now launching. Apple remains the most
sought after ‘aspirational’, ‘price is no object’ phone.
Notes from the LTE Americas Congress event, Las Vegas
We summarize our key takeaways from the LTE Americas Congress we attended
last week in Las Vegas. Attendees were optimistic about rapid roll-out times, but
we continue to see commercial LTE access equipment and terminals remaining
unavailable for several years more. While we could see elements of the LTE
standard deployed in the core, enthusiasm about LTE handsets arriving by 2010
seems misplaced to us.
Brightpoint – reducing our estimates
We are lowering our forward estimates and price target on Brightpoint, based on
our latest round of checks which point to further handset industry weakness.
Starent – Q4 tracking well; fundamentals remain strong
Our latest round of checks suggest that Starent's core CDMA and UMTS core
network equipment business is tracking well for Q4 and through next year.

Signals to Investors
Brightpoint: reducing our forward estimates
We are lowering our forward estimates and price target on Brightpoint, based on our latest
round of channel checks which point to further weakness in the handset industry. We
reiterate our caution on weakness in the handset market with these checks, but maintain our
Buy rating on the stock, as we believe that the company can grow meaningfully, albeit at a
bumpy pace, aided by market-share gains as the company leverages their scale advantage
and healthy balance sheet.
Revised forward estimates
Our updated estimates are below:
4Q08E was $1.3 b and $0.16, is $1.2 b and $0.09
1Q09E was $1.2 b and $0.10, is $1.1 b and $0.05
2008E was $4.9 b and $0.44, is $4.9 b and $0.37
2009E was $5.1 b and $0.60, is $4.6 b and $0.45
2010E is $5.0 b and $0.70
Valuation and risks
We are lowering our price target from $8 to $6. Our price target is based on a DCF analysis
with a risk-free rate of 4.9%, beta of 1.5, growth rate of 4.5%, and discount rate of 12%. Our
growth rate assumption is consistent with longer-term growth rate trends observed for this
industry segment and the company's peer group. Our discount rate is determined with a
weighted average cost of capital of 12%. Key downside risks to our price target include a
potential margins weakness, resulting from development of new market opportunities - both
in the distribution and logistics services supply chain, or slowdowns in sales from major
customers. Other risk factors also include any unanticipated shifts among major customers in
their distribution or logistics services partners or awarding of contracts, or shifts in consumer
spending preferences.
Starent: Q4 tracking well; fundamentals remain strong
Our latest round of checks suggest that Starent's core CDMA and UMTS core network
equipment business is tracking well for Q4 and through next year. Our conviction is based on
our conversations with our industry contacts, who note that the company appears to have
recently won several Tier-2 wins in EMEA and APAC, including an additional win in China –
which brings their total in China to two.
Expect continued UMTS and CDMA market share expansion in 2009
Our checks further note that the company's products continue to be received favorably by
their Tier-1/2 mobile operator customers and that deployments of their ST series platforms in
both CDMA and WCDMA/HSPA core networks are proceeding along, as scheduled, with
minor software issues. That said, we expect Starent to continue to grow UMTS and CDMA
market share next year, giving us confidence in their 2009 revenues and margin outlook. The
company appears well-positioned in two major UMTS equipment RFPs - Telefonica and
Orange, with the primary competitor being Ericsson.
Reiterate Buy rating and $16 PT; deployment delays key risk factor
Our price target is based on a DCF analysis. We assume a WACC of 12% and a 3% growth
rate. Our 12% WACC is based on a risk-free rate of 4.8%, beta of 1.5, and equity risk
premium of 4.8%. Key risks include potential mobile equipment capex and deployment
delays, shifts in consumer and carrier capex spending patterns, and, UMTS market
competition.