Nortel Networks Corp, Ericsson AB and other phone-equipment makers, which are ending the industry's worst quarter in June, are unlikely to see a rebound in the next three months, investors and analysts said.
Nortel has said it will report a US$19.2 billion loss, chiefly from write-offs, in the quarter ending today, one of the largest in corporate history, and Nokia Oyj cut its profit forecast two weeks ago, pushing shares down 23 percent that day, the biggest decline in a decade. All together, four of the world's top phone-equipment makers have said they expect to post collective losses in the quarter of about US$23 billion.
"This is not going to be the end of it -- expect more blood," said Dennis See, who manages about US$120 million at Pointworth Asset Management Pte in Singapore. ``There's no sign of a turnaround yet.''
Phone companies such as AT&T Corp and Sprint Corp.are delaying spending on new equipment as long-distance prices drop.
In Europe, customers such as Deutsche Telekom AG are teaming up to reduce planned investments after spending US$100 billion on permits to offer faster wireless services. Other corporations are also cutting spending as economic growth slows worldwide.
About a month into the world's first trial of the speedy, new mobile-phone services, Japan's NTT DoCoMo Inc is struggling with glitches and handset recalls, underscoring concern the new generation of cellphone services -- and demand for new mobile phones and network equipment -- may be years away, analysts said.
Investors say that's got equipment makers worried they won't see the investments in networks they had hoped for.
Ericsson, Motorola Inc and others may see earnings improve slightly in the third quarter, although not by much. Analysts expect Ericsson to post a smaller loss in the third quarter than the 5.6 cents-a-share loss they expect for the previous three months. Motorola may break even in the next three months after an expected 12 cents per-share loss in the second quarter, according to analysts polled by Ibes International Inc.
Ericsson, the biggest maker of wireless networks, expects growth in the phone-equipment market to fall by half this year to between 8 percent and 10 percent, with growth as low as 5 percent for wireless network gear alone.
Shares of equipment makers are at some of their lowest levels. In Europe, Nokia, Ericsson and Alcatel SA pushed the Bloomberg Europe Telecommunications Equipment Index down two-thirds in the past year. In the US, the regional equipment index -- dominated by Qualcomm Inc, Nortel and Motorola -- lost three-quarters of its value.
With plunging share prices, phone companies from British Telecommunications Plc, Deutsche Telekom to AT&T may have a harder time raising funds for new networks, analysts said.
"The industry will be challenged to maintain their revenue stream both in terms of the end customer and in the vendor perspective," said Rick Pryor, senior vice president of mobile communications at Siemens AG in Singapore.
Marconi Plc, the UK's largest phone-equipment maker warned the six months to September will be "difficult."
Motorola, the No. 2 mobile-phone maker, may have a larger- than-expected loss in the second quarter because sales of chips for cell phones and other phone equipment have probably fallen more than previously forecast, analysts said.
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