Three wireless equipment giants cast a long shadow on the months ahead as they recorded net losses in their second-quarter reports and expressed doubts about when the economy will wade out of its slump.
Finnish vendor Nokia Corp., which seems to show greater resilience than other manufacturers, posted lower net income at $724.6 million, compared with its showing last year of $857.9 million. Swedish company L.M. Ericsson recorded a net loss of $1.3 billion, against a net profit of $958.2 million a year ago. Canada’s Nortel Networks Corp. posted its worst loss ever of $19.4 billion.
Both Nortel Networks and Ericsson met market estimates, but Nokia performed a little better. All three, however, have rested turnaround hopes on the rollout of next-generation services, which may begin in 2002.
“The industry is clearly now in transition to new technologies, and at the same time we have an economic downturn,” said Jorma Ollila, chairman and chief executive of Nokia. “This is affecting the demand for phones from end users, as well as the telecom operators’ investments. This trend will continue until the second half of next year, when 3G comes online.”
Ericsson’s sales stood at $5.89 billion, a drop of 3 percent from year-ago figures of $6.1 billion. Nortel reported revenues of $4.6 billion, down 36 percent from a year ago when it posted $7.21 billion. Nokia’s pre-tax profit slumped to $1.02 billion from $1.27 billion.
Nortel said its loss would have been $1.55 billion, or 48 cents a share, if it excluded restructuring charges and write-downs. It posted a $12.3 billion write-down, which mainly was due to a number of businesses acquired by the company.
“These challenging industry dynamics are expected to continue, and we do not expect meaningful growth in spending to occur before the second half of 2002,” said John Roth, Nortel’s chief executive.
Ericsson said it recorded a 9-percent jump in the sales of its system units, which accounts for 80 percent of its revenue, amounting to $4.6 billion for the second quarter. The Swedish company expects to experience growth in that sector. It posted an operating loss of $432.1 million in its handset division, where it believes it has gained some market share, compared with $197.2 million in the same period a year ago.
Ericsson announced a joint venture with Sony Corp. in the quarter, and hopes to combine its muscle in the market with the dainty designs of Sony phones to gain competitive advantage. The tie-up is not expected to go into effect until Oct.1.
The reality of the market is not lost on the company.
“Now uncertainty has increased even further, particularly in the U.S. and Western Europe regarding the duration and severity of the current unfavorable market environment,” said Ericsson.
As part of what the company describes as its efficiency program, it laid off 1,300 workers and 5,800 consultants and expects 2,000 more employees to be separated from their jobs in August. Ericsson said it expects to gain $516.4 million from its restructuring program.
Nokia maintains its lead in the handset market, although its 40-percent market share has dropped a little in the light of the charge of other makers like Siemens AG of Germany. The Sony-Ericsson alliance is targeted at chipping into Nokia’s dominance of the space.
“We expect to at least maintain market share,” said Ollila. “But many of our competitors are selling phones at a loss. We’re not going to do that, and if that means 40-percent market share is put back one or two quarters, that’s not a problem.”
Although Nokia tops the industry, UBS Warburg is cautious: “Assuming the overall macro picture does not deteriorate materially, we believe margins will likely trend lower until new product cycles ramp in volume, which will likely require the elusive mobile data story to finally appear in a quantifiably material way.”
Nortel said it has trimmed its inventories and saved money from layoffs. It cut 23,000 jobs of its projected 30,000 payroll cuts and said it has $3 billion credit lines, in spite of spending much money to finance operations. Roth said he does not anticipate further job cuts in the third quarter.
“In the U.S., Nortel continues to benefit from market share gains against Motorola in CDMA and continued robust spending in CDMA equipment,” wrote UBS Warburg in maintaining a hold rating for the company. “Europe and Latin America were down significantly.”
