Canaccord Genuity on Wireless Equipment; Apple and Android Smartphones Gaining Share

Canaccord Genuity on Technology -- Wireless Equipment; Apple (Nasdaq: AAPL) and Android (NYSE: MOT) smartphones gaining share

Canaccord analyst says, 'While industry component constraints limited Q3/10 handset sales, our monthly handset channel checks and recent earnings reports from the major handset OEMs indicate inventory levels remain lean. As a result, we anticipate seasonally strong Q4/10 global handset sales. Further, OEMs with compelling
smartphone product portfolios gained market share and clearly gained value share during Q3/10. Finally, Apple and Android smartphones continue to gain increasing traction, as consumers and developers increasingly embrace these leading smartphone ecosystems."

"Apple generated a remarkable 47% value share of estimated Q3/10 handset industry operating profits with only 3.9% global handset market share. Further, smartphone-centric OEMs Apple, RIM, and HTC captured an estimated 71% of industry profits in Q3/10, while traditional handset OEMs Motorola, Sony Ericsson (NYSE: SNE), and LG continue to transition product portfolios toward a greater mix of smartphones. LG posted a large operating loss during Q3/10, as it struggles with the transition from feature phones to smartphones. However, Motorola’s Android smartphone strategy resulted in it returning to profitability in Q3/10, and Sony Ericsson (Nasdaq: ERIC) also posted a solid operating profit due to its Android strategy."

Updated global handset unit estimates: Based on the Q3/10 results of the top 8 OEMs, we believe Q3/10 global handset unit sales increased from 316M units in Q3/09 to 362M units in Q3/10, or a 14.5% YoY increase. Based on our expectations for continued strong smartphone sales combined with strong sales in emerging markets, we are increasing our 2010 forecast from 1.43B to 1.44B units and our 2011 forecast from 1.60B to 1.63B units.

Risks: Continued global subscriber growth and recovering emerging market sales,
improving global sales mix of smartphones, and healthy handset replacement sales are key variables for our pricetargets.

Canaccord Genuity reiterates a 'Buy' rating on Apple (Nasdaq: AAPL) - "Given the strong iPhone 4 results, we increased our C2010 iPhone unit sales estimate from 41M to 47M and our C2011 iPhone estimate from 58M to 73M."

Maintains a 'Buy' on Nokia (NYSE: NOK) - "Nokia’s weak high-end smartphone portfolio continues to negatively impact Nokia’s value share or share of industry profits. In fact, based on our analysis of the eight leading OEMs, Nokia’s Q3/10 value share declined to 17% in Q3/10 from 21% of industry profits in Q2/10 and 29% of industry profits in Q3/09. With our checks indicating ramping sell-through trends of higher-margin smartphones, we believe Nokia’s value share losses were due to
its aging smartphone portfolio relative to ramping iPhone sales and Android smartphone sales. However, we believe Nokia’s value share could recover during the seasonally strong Q4/10 with its new Symbian smartphones ramping in volume and positively impacting ASPs and overall margins."

Maintains a 'Hold' on Motorola (NYSE: MOT) - "While we believe Motorola will post strong Q4/10 smartphone unit sales, we anticipate a much greater mix of mid-tier smartphones. As such, we anticipate Mobile Device ASPs will decline from $224 in Q3/10 to $219 in Q4/10. Further, we are modeling Q4/10 Mobile Device Division sales of $2.4B with another positive operating margin quarter of 3.0%...Based on our expectations for improving Q4/10 operating margins for Motorola, we believe its value share will continue to improve."

Maintains a 'Hold' on Research in Motion (Nasdaq: RIMM) - "We anticipate December quarter sales of 14.1M units, which should help RIM gain modest market share to 3.4% of industry units, but we anticipate flat to down value share...Strong international sales drive growth but lower ASPs...Potential share loss in high-end North America smartphone market...Potential for negative subscriber growth in North America during 2011."

Maintains a 'Hold' on LM Ericsson (NASDAQ: ERIC) - component constraints impact unit sales...Android mix improving in overall product portfolio...Aging product portfolio, increasing Android competition...Value share improves Sony Ericsson’s improving smartphone portfolio continues to positively impact its value share or share of industry profits. In fact, based on our analysis of the eight leading OEMs, Sony Ericsson’s Q3/10 value share was at 1% in Q3/10 from 1% of industry profits in
Q2/10 and improved from -7% of industry profits in Q3/09.

LG: lack of strong smartphone portfolio leads to unit market share losses and
increased operating losses: Value share declines

HTC: strong Android sales result in solid results and guidance

Maintains a 'Buy' on Qualcomm (Nasdaq: QCOM): well positioned to benefit from
strong global smartphone trends

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