Ericsson AB, Siemens AG and other makers of telecommunications equipment may have lower-than-expected sales this year after Europe's biggest phone companies indicated they'll reduce spending, investors said.
Deutsche Telekom AG, Europe's largest phone company, on Tuesday said it will trim investment in new networks by 10 percent this year. France Telecom SA Thursday said it'll keep spending at last year's level, less than some investors expected.
Europe's phone companies, which spent about US$100 billion for new wireless permits, have been slashing investments as they focus on cutting debt. The reduction by the former German phone monopoly, which followed similar moves by rivals such as Telefonica SA, will prolong the equipment industry's slump.
PHOTO: AFP
Deutsche Telekom "wasn't an isolated case," said Henrik Tell, who manages US$80 million in technology stocks at Oehman Kapitalfoervaltning AB. "Operators need to sort out their finances before going back to business as usual. There's still a lot of misery out there."
Ericsson, Nokia Oyj, Motorola Inc, Nortel Networks Corp and Siemens AG -- the five biggest makers of wireless network gear -- have shed about US$8.9 billion in combined market value in the past five trading days.
"The overall picture is a very bleak one," said Mika Paloranta, an analyst at Nordea Securities in Helsinki who believes network sales at Nokia and Ericsson this year will be less than either predict.
The Finnish company, which last week stuck to a forecast that network sales would climb 15 percent this year, will instead have "roughly flat" equipment revenue, Paloranta said. Ericsson will likely see a 13 percent drop, even after it stuck to a forecast sales would fall no more than 10 percent, he said.
Nokia expects to meet its full-year target because of higher revenue from US phone companies and as it starts booking sales from the faster wireless systems. Ericsson said growth in Eastern Europe and the US would partly offset a slump elsewhere.
Both forecasts came before statements this week by France Telecom and Deutsche Telekom, which follow cuts by rivals.
Vodafone Group Plc, Europe's largest wireless network operator, in January said its Japan Telecom Co would chop spending in half for the fiscal year ending March 31.
Telefonica, Spain's largest traded company, cut network spending by 7.9 percent to 8.4 billion euros (US$7.4 billion) last year and has pledged to continue reducing spending this year.
J.P. Morgan Chase & Co analysts on March 13 cut their estimates for global spending on wireless networks this year and next, saying forecasts from operators were too high. Spending will drop 10 percent this year and 5 percent next year, they said.
Slowing growth in cellular subscribers and mobile-phone usage is reducing the need for network upgrades, said J.P. Morgan analyst Jamie Wood. Equipment makers are hoping faster technologies such as General Packet Radio Service and the Universal Mobile Telecommunications System will lure users to spend on services other than voice calls, such as Web surfing.
"What they really need is data usage," Wood said. "But we're skeptical about both GPRS and UMTS."
The equipment makers' woes have been worsened because many of their clients are struggling to reduce debt. Deutsche Telekom on Tuesday said it will miss a target to cut its debt to 50 billion euros from 62.1 billion euros. France Telecom is trying to cut about 60.7 billion euros in debt.
"Western Europe still has a bit of a hangover," said Mats Dahlin, head of Ericsson's European unit, in an interview last week. "Operators are careful because they still have some debt to pay off."
Even a rebound in global economies may not help Ericsson and its rivals, some investors said.
"In telecoms equipment the story isn't good," said Jeff Currington, who helps manage about US$110 billion for Pictet & Cie in London.
The economic recovery "is being outweighed by the downturn in operator spending, and as we saw with Deutsche Telekom, this hasn't run its course."
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