Alcatel Alsthom’s announcement of lower-than-expected earnings hit telecom stocks in Europe and the United States late last week.
The French telecom equipment vendor said its telecom segment’s income will be “adversely impacted by sharp investment cuts recently decided by some traditional operators and the deepening of the Southeast Asian and Russian crisis.” An Alcatel spokesman said the company has experienced a slowdown in mobile-phone-network sales in Asia.
Alcatel’s stock plunged $12.17 to close at $19.25 on Thursday. The company’s shares fell more than 40 percent on the Paris stock exchange. Shares of European manufacturers Siemens AG, L.M. Ericsson, Nokia Oy and Philips N.V. fell on the Paris stock market as well.
Alcatel’s announcement comes at a time when financial crises have been gripping Southeast Asian countries for more than a year. Motorola Inc. is one infrastructure vendor that has been hit hard by the slowdown in Asia as several of the company’s business segments continue to experience increased pricing pressures due to weakened Asian currencies. Ericsson’s Mobile Phones and Terminals division in July reported only 1-percent growth in sales from second-quarter 1997. The company pointed to Asia’s financial crisis as a primary reason for weakening sales.
If financial problems loom in Asia and Russia and potentially spread to Latin America, manufacturers with a heavy presence in these regions could be in for more difficult times if carriers slow down infrastructure buildout and demand for service falls. Jake Saunders, analyst with the Strategis Group in London, believes handset makers will be hardest hit.
“Nokia and Ericsson already have been have been successful in acquiring infrastructure projects overseas, and I don’t see those revenue streams being badly hit,” he said. “What will be hit is handsets, which is more tied into consumer demand and is more susceptible to the circumstances.”
Many countries in the affected regions, including Russia, awarded mobile-phone licenses within the last two years and operators are required to get into the marketplace, but existing operators may curb expenses in their networks.
Most analysts predict a slowdown of mobile-phone-service growth in the short term. The Strategis Group’s forecast for the Russian market is a slow-growth period for one to two years. Asia’s long-term growth rate remains stable.
“There’s always a demand for telecommunications,” said Saunders. “Mobile communications is used for fixed-line services when there are no other options. “
