Nokia, Ericsson Shares Plunge as US Demand Slump Continues

By Dominic Chopping

STOCKHOLM--Shares in Nokia and Ericsson plunged Friday after the Nordic telecom giants warned of an extended demand slump in North America, pushing back an expected recovery into next year.

Nokia shares fell as much as 10% in early trade Friday after the company cut its sales outlook for this year and narrowed margin guidance as it cautioned on weaker demand in the second half, mostly from the U.S.

Recession fears are curbing operator spending plans and delaying what both Nokia and Ericsson hope will be the next leg up in North American customer spending as operators are forced to further invest in their networks to cater to surging data traffic growth.

"Customer spending plans are increasingly impacted by high inflation and rising interest rates along with some projects now slipping to 2024--notably in North America," Nokia said Friday.

Also weighing is the large amount of inventory that operators built up over the last couple of years. Supply-chain constraints saw customers stockpile equipment so they could continue to build out their networks amid a prolonged environment of limited supply, but with trade flows now functioning with little dispruption, operators are now using their stored inventory instead of ordering new equipment.

"The weaker demand outlook in the second half is due to both the macroeconomic environment and customers' inventory digestion," Nokia noted.

The Finnish company said it now sees sales of between 23.2 billion euros and 24.6 billion euros ($26.05 billion-$27.62 billion) this year from EUR24.6 billion to EUR26.2 billion previously, while its comparable operating margin is seen at 11.5% to 13%, from 11.5% to 14% previously.

It also reported preliminary second quarter sales of EUR5.7 billion, below the EUR6.04 billion seen in a FactSet poll.

Ericsson too disappointed with its guidance when it released second quarter earnings Friday, saying it expects similar market trends in the third quarter with an adjusted earnings before interest, taxes and amortization margin in line with or slightly above the second quarter, which was below expectations and sent shares almost 9% lower.

The Swedish company reported an adjusted Ebita margin of 5.7% in the second quarter, while Kepler Cheuvreux analyst Sebastien Sztabowicz said in a note that consensus expects a figure of around 9.9% for 3Q.

Sales in its main networks unit fell 8% on-year, as a sharp increase in orders from India only partially offset a 50% sales drop in North America as operators reduced their spending and continued to adjust inventories.

"With both Ericsson and Nokia lowering their outlooks this morning, any fundamental recovery looks delayed into 2024," Citi analysts said in a note.

Write to Dominic Chopping at [e-mail]

(END) Dow Jones Newswires

July 14, 2023 08:03 ET (12:03 GMT)

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