The confident Europe that only yesterday scored a phenomenal success in mobile phone technology is today undeniably in a state of struggle.

Over the last few months, leading telecommunication technology companies here have revised their market outlooks downward. Ericsson warned in its first-quarter report that it will record a loss this year and won't return to profitability until sometime in 2003. Kurt Hellstrom, Ericsson's president and chief executive officer, pegged it to many operators that "have recently lowered investment plans further." Similarly, Nokia recently issued a fresh sales warning that its expected second-half recovery would not be as sharp as projected. The company is anticipating less than 10 percent growth in sales in the second half, and Jorma Ollila, Nokia's CEO, said it was unclear when the industry would rebound.

Considering the quadruple whammy of market saturation, slow sales of replacement handsets and cuts in infrastructure spending in the midst of a general economic downturn, many analysts remain unsure how soon the telecommunications technology companies will climb out of the abyss.

Prospects are no brighter for a much-hyped interactive digital TV market. Armed with Europe's well-established Digital Video Broadcast standard, European service providers appeared for a while to be making some headway in this emerging market. But over the past six months, bad news kept piling up on the service side, as a host of European media companies as well as cable TV and telecom operators-including Vivendi Universal, France Telecom, TV Cabo in Portugal and Kirche Group in Germany-made investors nervous with talk of ballooning debts and dwindling cash flows.

The long-promised rollout of full-fledged terrestrial digital TV broadcasting in continental Europe hasn't even started. Such a sluggish infrastructure buildout can only stymie those European system and semiconductor companies that are staking their recovery on growth in the digital consumer market.

Chip makers, meanwhile, took some bold steps in the first half of this year. In a move that could define a new model in the semiconductor industry's global research-and-development landscape, STMicroelectronics and Philips Semiconductors banded together with Motorola Inc. in the United States to pursue joint, precompetitive R&D activities in Crolles, France. Under the agreement, announced here in April, the companies, as equal technology partners, will split three ways a $1.4 billion investment in the 300-mm-wafer Crolles 2 project by 2005, including capital expenditure, R&D costs and wafer load for the fab.

Joel Monnier, corporate vice president and R&D director at STMicroelectronics, said that getting Motorola into the mix was crucial to France and to the future of the ST-Philips collaboration.

At a time when many semiconductor development and production activities are moving to Asia, the project "will keep the technology world more balanced," said Bill Walker, senior vice president and general manager of Motorola's Semiconductor Products Sector.

"Partnership" appears to be a key operative word for many European companies hoping to generate enough momentum to ride out the recovery. On the systems side, Nokia, for one, has launched an alliance of its own, an industry initiative called Open Mobile Architecture (OMA). The Finnish company is hoping to unify the mobile industry's separate and disparate platforms, ranging from networks and service platforms to terminals and applications, around an open platform around which vendors could design and build new and interoperable services critical to 2.5- and third-generation networks.

Despite the formidable lead Europe took in the 1990s by solidifying efforts on the GSM standard, the European mobile industry in the past 18 months has been struggling to unscramble complex interoperability issues that have delayed the market's acceptance of new services, including Wireless Application Protocol, Multimedia Messaging Service (MMS) and General Packet Radio Service. "We've recognized the fragmentation of service platforms as a huge issue for unlocking the potential for peer-to-peer mobile communications," said Pertti Korhonen, senior vice president of Nokia. Music, games and other entertainment, mobile commerce and corporate services are expected to serve as pillars of the 2.5G and 3G networks. And yet, without a platform that allows an end-to-end service scenario, it's hard for operators and application developers to launch compelling services that are interoperable across different handsets. OMA intends to be "a forum where the industry leaders align their efforts to enable new services that can work across different standards and platforms," Korhonen said. So far, more than 30 companies have joined.

For an industry desperately in need of good news, mobile handsets integrated with a camera could breathe new life into the European mobile telecom industry, as those units reach the European consumer market in volume this year. After cameras come other multimedia gizmos.

Frost & Sullivan has predicted that MMS-building on familiar text-messaging features but adding graphics, video, sound and other multimedia elements-will generate new revenue streams from the existing customer base and lure new customers, as a $68 million market this year grows to $26.9 billion in 2006. But Frost & Sullivan cautiously forecasts that only 6 percent of total handset shipments in 2002 (excluding PDAs) will be MMS-enabled. Not until 2005 will MMS handsets reach mass-market levels.

Despite the stagnant regional market, Jean-Philippe Dauvin, chief economist at STMicroelectronics, remains fairly confident about market growth in the wireless and consumer segments. While he cautioned against expecting an imminent upturn in IT hardware spending and predicted PC unit growth in the 5 percent range, Dauvin projected growth in handset end demand at around 10 percent this year. The consumer system market, he said, is "the only segment where we are seeing real growth in our semiconductors." In all Dauvin labeled 2002 "a year of transition."