© Reuters. FILE PHOTO: A logo of Ericsson is seen outside the company’s office in Kanata, Ontario, Canada April 17, 2023. REUTERS/Lars Hagberg
By Martin Coulter
LONDON (Reuters) -Finland’s Nokia (NYSE:) cut its annual outlook on Friday and Swedish rival Ericsson (BS:) reported plunging quarterly profits, as a slowdown in consumer spending hit sales of telecommunications gear.
Nokia’s shares were down 9.6% in morning trade to their lowest since April 2021, while Ericsson shares were down 8.7%.
Fears of an impending recession have forced telecoms businesses to cut budgets and hold off on device upgrades and digitalisation plans, slowing plans at firms such as Nokia and Ericsson to expand 5G networks and broadband connections.
Consumers holding back on spending has also forced a number of major telecoms firms to cut costs and lay off employees. In May, Vodafone (NASDAQ:) announced plans to cut 11,000 jobs globally, while BT said it would reduce headcount by 55,000 by 2030.
“The companies thought that demand would pick up in the second half of the year, particularly in North America, but it now looks increasingly clear that it will be pushed to 2024,” Kimmo Stenvall, analyst at OP Markets, told Reuters.
In February, Ericsson announced plans to cut 8,500 employees globally in order to reduce costs. On Friday the firm said the impact of such cost-cutting activity would be “increasingly visible” in coming quarters.
Nokia reported second-quarter sales of 5.7 billion euros ($6.4 billion), short of the 6 billion expected by analysts polled by Refinitiv.
Nokia said it now expects 2023 sales of 23.2-24.6 billion euros ($26.1-$27.6 billion), lowering a previous forecast of 24.6-26.2 billion euros.
Weakness in Nokia’s network infrastructure and mobile networks businesses also prompted the company to narrow its comparable operating margin range outlook to 11.5-13% from 11.5-14%.
CAUTIOUSLY OPTIMISTIC
Ericsson reported a 62% fall in second-quarter adjusted operating profit, slightly above market expectations.
The decline was driven by a slowdown in spending among operator clients, particularly in North America, though the company said this was partially offset by growth in India.
The Swedish telecom equipment maker’s operating profits, excluding restructuring charges, fell to 2.8 billion Swedish crowns ($271 million) from 7.4 billion a year earlier.
Citing increasing demand for 5G, Ericsson CEO Börje Ekholm predicted the market would undergo a “gradual recovery” in late 2023, and improve in 2024.
Net sales rose 3% to 64.4 billion crowns and topped the 63.9 billion expected by analysts, Refinitiv Eikon data showed.
Ericsson’s reported gross margin for the second quarter fell to 37.4% from 38.6% the previous quarter.
Richard Webb, analyst at CSS Insight, said the company’s quarterly earnings were “Okay, but not stellar”.
“It’s a little lukewarm,” said Webb, noting that Ericsson’s business strategy may take until the end of the year to show results.
“In a couple of quarters, we’ll be in a better position to judge how their strategy is working. I remain cautiously optimistic.”
($1 = 10.3374 Swedish crowns)
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