STOCKHOLM -(Dow Jones)- Strong order growth at Nokia and Ericsson
should help produce healthy half-year results, but investors are worried
about pressure on mobile-phone prices.
Nokia (NOKA), which reports Friday, is expected to post six-month
pretax profit of 5.1 billion Finnish markkaa ($938.5 million), according
to SIX Markets Estimates, a forecasting firm. That's up 56% from 3.3
billion markkaa a year ago.
For Ericsson (ERICY), reporting Monday, the forecast is for pretax
profit of 7.43 billion kronor ($934.6 million), up 22% from 6.10 billion
kronor.
When it comes to Ericsson, analysts will be concentrating on whether
the company is making progress within the consistently weak fixed-line
systems Infocom unit, given the increased focus on that unit by Ericsson
management.
"Ericsson is expected to say that profitability within Infocom has
improved but is still unsatisfactory and that it expects to break even
in 1998. If anything else (more negative) is said then it will be a
disappointment," one analyst said.
Analysts also pointed to Ericsson's sales and administration expenses
as an area of concern following a jump in the first quarter and said
they will be looking to see whether this trend continued in the second
quarter and to see how these expenses developed for Nokia.
"I'm looking for confirmation that Nokia doesn't have to respond to
Ericsson's higher marketing costs," said Jean Saughnan, an analyst at JP
Morgan in London.
Another analyst based in Norway said he expects to see continued high
margins for Nokia within systems and infrastructure. He noted that both
Nokia and Ericsson have said that they have experienced less price
pressure on prices on mobile phones than they had anticipated.
"However, rumors have been circulating that Nokia has problems with
delivering their 6100 and 5100 mobile phone models which could lead to
the company loosing market share," the analyst said, adding that he will
be looking to see how Nokia's GSM1800 system is doing in the U.S., China
and Europe.
"For Ericsson, I'll be concentrating on developments for its Infocom
unit. Infocom has been introducing a lot of new products and it is
important to continue this trend," the Norway-based analyst said.
"In the short term, Nokia is a better buy as it has earnings
momentum, but in the long term Ericsson is a better buy as long as
things remain unsettled on international markets due to the firm's
better geographic spread. I also expect Infocom to get going at the end
of the fourth quarter," the analyst said.
Another analyst said that the degree to which Nokia's sales of
analogue mobile phones has affected growth is a factor to examine.
"Nokia has hinted about a shift in the product mix towards cheaper
mobile phones. It will be intersting to see how this shift has affected
the average sales price," the analyst said.
Saughnan at JP Morgan said Nokia's order book in infrastructure has
been growing rapidly and that he will be looking to see if Ericsson is
at least holding on to market share in this area.
"The growth in Nokia's infrastructure order book cannot go on
forever. Maybe this is the quarter that it starts slowing down," he
said.
"Nokia should be generating very good margins in handsets on higher
volumes. I'm also looking to see that ramping up (increasing volumes on
new handsets) problems have been solved," Saughnan said, adding that he
was on the lookout for possible news about acquisitions particularly in
the field of data communications.
Ericsson and Nokia shares have done very well this year to date on
the Stockholm bourse, with Ericsson gaining 68% and Nokia gaining 144%.
During the same period the Stockholm Stock Exchange General Index gained
28.43%. Analysts said future gains are dependent on the first-half
results and indications given in the reports.
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved.
|
