EARNINGS PREVIEW: Telco Gear Cos 2Q to Remain Challenging
TAKING THE PULSE: After an unspectacular first-quarter, Europe's telecommunications infrastructure and handset makers are set to provide scant relief to embattled investors in the second-quarter.
Mobile phone makers Nokia and Sony Ericsson, the joint venture between Ericsson and Sony, are both expected to report ongoing difficulties, especially in Europe. The second quarter, for which Sony Ericsson already issued a profit warning, is expected to be hit by slowing demand and greater competition for high-end devices. Strong device sales in emerging markets should offer some respite, though.
Meanwhile, a stagnating wireless equipment market is likely to do little to brighten the prospects of Ericsson, Alcatel Lucent, and Nokia Siemens Networks. Weakness stemming from delayed capacity expansion and cost saving by network operators is expected to continue until at least the end of the year.
Comments on how macroeconomic woes may be affecting the companies will be important. Attention will also be paid to the quality of earnings after both Ericsson and Alcatel-Lucent benefitted from selling intellectual property in the first quarter.
COMPANIES TO WATCH
--- Nokia --- (July 17)
MARKET EXPECTATIONS: The average selling price of Nokia's mobile devices is
expected to slip in the second quarter from EUR79 in the first quarter as
lower-end handsets make up a greater proportion of sales and higher-end devices
are hit by the worsening economic outlook and increased competition. Nokia is
expected to show slight improvement at infrastructure joint venture Nokia
Siemens Networks, as it focuses on cost cutting.
MAIN FOCUS: Analysts will be looking for guidance on how the economic downturn is seen affecting sales over the remaining two quarters of 2008 and in 2009 and for extra news on the progress of NSN, the joint venture with Siemens of Germany, in boosting profitability.
--- Sony Ericsson --- (July 18)
--- Telefon AB LM Ericsson --- (July 22)
MARKET EXPECTATIONS: Market expectations are for continued pressure on
Ericsson's gross margins in the second quarter due to significant exposure to
low-margin rollout business in India. Weakness at Sony Ericsson after two profit
warnings, and at its Ericsson Mobile Platforms business, will weigh on earnings.
MAIN FOCUS: Network margins will be a key focus, as will more detailed guidance or any amendment to its "flattish" outlook for the wireless network segment in 2008. The market will also look for progress on the company's SEK4 billion cost cutting plan. Any sales of intellectual property rights will be eyed after providing some upside to first-quarter earnings. Comments on the future business mix will be watched closely.
--- Alcatel-Lucent --- (July 29)
MARKET EXPECTATIONS: Analysts are expecting Alcatel-Lucent's second-quarter
performance to keep it on track to meet its cautious full-year guidance. The
company has forecast revenue to rise 4% to 6% quarter-on-quarter; anything
outside this range would come as a surprise.
MAIN FOCUS: Attention will be paid to revenue, gross margin and adjusted operating profit, with a view to how the product and geographical mix are impacting results. Reassurances will be sought on continuing improvement at its struggling WCDMA business.
-By Jethro Mullen and Adam Ewing, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 14th July 2008
