Grim Q1 seen for European telecom equipment firms
By Paul de Bendern
HELSINKI, April 18 (Reuters) - Europe's top telecoms
equipment makers are likely to fuel fears that an industry
recovery is still some way off when they begin releasing
quarterly results this week, as weakening demand bites into both
sales and profits.
Nokia and Ericsson's results for the
first three months of the year, both due on Friday, are expected
to be hit by the wider economic slowdown in the United States
and tougher market conditions in Europe, where sluggish demand
is seen for both mobile networks and handsets.
But more importantly, the market will be seeking guidance
for the rest of the year from both companies.
"I still expect some turnaround this year but I'm becoming
more sceptical every day," said analyst Mika Paloranta at
Finland's leading brokerage ArosMaizels, adding investors
looking to buy Nokia and Ericsson should not do so until after
the results on Friday -- at the earliest.
Several analysts, including Paloranta, expect Nokia to cut
its previously announced 2001 sales targets.
And January-March earnings from rivals Alcatel of
France and Germany's Siemens due on April 26 will
also be high on the agenda of nervous investors looking for
signs of when the battered sector and its shares will recover.
"Although we have heard warnings from nearly all of our
companies under coverage -- Alcatel on mobile handsets, Ericsson
on infrastructure, and Nokia on the global handset market -- we
still believe additional warnings are imminent," Merrill Lynch
said in its European Technology 2001 Q1 Results Preview.
Philips , Europe's largest maker of consumer
electronics, on Tuesday said it expected to make a loss in the
second quarter and may cut 7,000 jobs after weak computer and
telecoms markets sent profits diving in the first three months.
ERICSSON'S TROUBLES CONTINUE
Analysts expect Nokia to havestill made a profit in the
first three months of 2001 as it benefited from its position as
the world's largest handset maker and is less exposed to the
U.S. mobile networks equipment market.
But Ericsson, the world's largest maker of wireless networks
that help power mobile phone usage, is likely to register a
pre-tax loss of 5.05 billion Swedish crowns ($492.6 million) for
the quarter, according to a Reuters poll of analysts.
Ericsson's loss, which it warned of in March, was caused by
its ailing handset unit and a slowdown in business for its
profitable mobile networks division. The firm posted a 6.1
billion crowns profit in the same period last year.
Ericsson's job reduction moves will also be in focus Friday.
Unlike Nokia, Ericsson has been hit by telecoms operators in
the United States cutting back orders for mobile networks
equipment based on current CDMA and TDMA standards. Nokia does
not provide equipment for these technologies and focuses instead
on GSM standards.
In contrast Nokia, now a rising force in wireless network
gear, is seen posting an unchanged first-quarter pre-tax profit
of 1.34 billion euros ($1.18 billion), according to a Reuters
poll. Nokia was the only one of the top three handset makers not
to cut Q1 earnings, but it did lower its sales targets.
But for both firms estimates for full-year 2001 were in a
wide range, indicating the lack of visibility in the industry.
Analysts say Nokia still benefits from huge economies of
scale, brand recognition and the ability to predict what
consumers want when it comes to handsets, despite a a sharp
slowdown in overall market growth.
This has so far enabled Nokia to gain market share at a time
when rivals are failing to even sell phones at a profit.
But the market is still worried that the full launch of
high-speed phones using so-called intermediate GPRS technology
in Europe late this year may not take off immediately, thus
making it harder for the likes of Nokia to tempt consumers with
new phones.
TOUGH HANDSET MARKET HITTING ALL PLAYERS
Motorola Inc , the world's second largest mobile
phone maker, last week gave the first indication of the state of
the handset market when it reported a worse-than-expected
first-quarter loss and warned it did not expect its handset
division to turn to profit until the third quarter.
But the U.S. group said it expected a gradual increase in
sales and profitability in the second half.
Both Philips and Alcatel's handset units are loss-making and
as a result have said they may consider exiting the business via
industry consolidation.
Analysts say if Ericsson again fails to live up to its
promises of when its troubled handset division will turn to
profit, pressure will resurface for the Swedish firm to finally
get rid of the unit that has plagued it for several years.
"We believe the weak players will become weaker (Ericsson,
Alcatel, Philips), while the strong players could face increased
pricing pressures but gain market share as the Nokia brand name
and portfolio furthers its lead," Merrill Lynch added.
SIEMENS
Telecoms equipment analysts will also be keenly awaiting
Siemens' quarterly earnings, particularly when it comes to
networks equipment and handsets, and more details about its own
outlook which is seen hurt by difficulties in the chip sector.
The German company, now the fourth largest mobile phone
maker, has been pushing hard to gain ground here as well as
breaking into the wireless equipment market dominated by
Ericsson, Nokia and Canada's Nortel Networks .
"On the mobile infrastructure side, Siemens should do well
this year but on the handsets side they could still face a tough
12 months. I don't think they will make a loss but they will
face margin pressure," said Theo Kitz of Merck Finck & Co.
Meanwhile Alcatel said last month it expected flat
first-quarter operating profits year-on-year, with a robust
networking and optics business to counter weak handset sales.
"There's not much uncertainty on the first quarter given
they've pre-announced, but the second quarter could be difficult
and the big focus will be on whether they give guidance or not,"
said analyst David Sebanjeantet at ABN AMRO in Paris.
For related story "U.S. slowdown hangs over Europe's Q1
software results" please click on [nL18440632] or key in code
and hit F9 key.
For details of poll of analysts' forecasts for Nokia results
"TABLE-Nokia Q1 profit seen at EUR 1.34 bln" click on
[nL1714897] and for Ericsson survey "POLL-Ericsson Q1 pre-tax
loss seen SEK 5 bln" click on [nL1712413].
(With additional reporting by Juho Karsio and Henrietta
Haavisto in Helsinki, Anna Ringstrom, Daniel Johansson, Jenny
Andersson in Stockholm, Catherine Bremer in Paris and Carmel
Crimmins in Frankfurt)
($1=10.251 Swedish Crown)
($1=1.135 Euro)
REUTERS
Rtr 13:19 04-18-01 |
