Soemthing to think about while the market continues to rally. Tech is still hurting...
Tuesday, March 18, 2003
Telecom equipment vendors still caught in vortex
Bolaji Ojo
EBN
(03/14/2003 11:59 AM EST)
Telecommunications service providers kept capital expenditures on a tight leash the first two months of the year, forcing telecom equipment suppliers to again prepare for a round of cost cuts.
The suppliers' pain may last through at least the first half of this year, according to Nokia Corp., which this week told analysts that sales will decline in its networks division, which makes wireless infrastructure equipment.
Demand for the Finnish company's network equipment will slide as much as 20% in the quarter ending March 31, while mobile phone sales are expected to be anywhere from flat to up 9%.
"Sales at Nokia Networks for the first quarter are expected to decline by 15% to 20% year-on-year, as operators in all major regions continue to decrease the level of their investments," the company said in a statement. "Nokia Networks will post a substantial pro forma operating loss for the first quarter, impacted by lower-than-expected sales volumes as well as costs related to the first-phase implementation of 3G technologies."
Although Nokia remains the undisputed leader in mobile phones with a 35.8% market share in 2002, compared with 15.3% for closest rival Motorola Corp., it is hurting badly in wireless communication infrastructure. Analysts estimate that Nokia's network sales will fall to $1.3 billion in the first quarter of this year, from $1.6 billion a year ago.
Nokia has been trimming expenses at its networks division and said it will announce further cost-cutting actions when it reports first-quarter results next month. However, analysts caution that it would be a mistake for the company to cut its research and development budget since it needs to beef up its W-CDMA product line.
"In our view, further cuts in R&D are not the right way to achieve better margins because mobile systems are not developed by magic, but rather by large engineering resources," said Jan Werding, an analyst at Carnegie Securities Finland Ltd., Helsinki.
Other communications infrastructure suppliers are not faring much better. On Tuesday, Sweden's L.M. Ericsson was clobbered on the equity market because of concerns the company, which earns a greater percentage of its revenue from equipment sales, may suffer even more than rivals.
Sales in Ericsson's mobile systems unit, which accounts for 82% of total revenue, fell 26% in 2002, to $14.4 billion, and will decline 19% in 2003, to $11.7 billion, according to Handelsbanken Capital Markets, Stockholm.
"We believe that Ericsson will continue to be the vendor that is most severely affected by operator capex cuts," said Philippe Schmitt, an analyst at Paris-based BNP Paribas S.A., in a report. "This is the case in PDC, TDMA, and also GSM. We also believe that Ericsson, currently involved in deploying W-CDMA networks in both Europe and Japan, could incur more development costs in order to fine-tune its technology."
While Nokia's network unit has recently dragged down the company's performance, its share of the handset market has continued to grow. New ap- plications have kept mobile phone sales roaring past estimates. Total global handset sales rose 6% in 2002, to 423 million, exceeding expectations for 400 million to 405 million, according to Gartner Dataquest, San Jose.
"As expected, the first quarter overall has been more difficult than Nokia predicted in January," said Karri Rinta, an analyst at Nordic Partners Inc., New York. "However, the handset market and Nokia's position in it remain strong." |
