Telecom Stocks Slump as Nokia, Ericsson Sales Disappoint

Finland’s Nokia cut its annual outlook on Friday, and Swedish rival Ericsson (ERICb.ST) reported plunging quarterly profits as a slowdown in consumer spending hit sales of telecommunications gear. Nokia, which sells four in 10 mobile devices worldwide, cut its net sales forecast and narrowed the expected operating margin range for the year. It said it expects weaker demand in H2 due to the macroeconomic environment and customers’ inventory digestion.

Analysts blamed the company’s problems on a slowdown in spending by telecoms businesses, which are holding off on upgrading their networks to faster fifth-generation technology and cutting back on equipment orders. Nokia is also facing stiff competition from China’s Huawei in its attempt to re-enter the global smartphone market. Shares in the Finnish firm fell 9% in morning trade to their lowest since April 2021, while Ericsson was down 8.7%.

The Swedish telecoms gear maker said it saw a decline in sales to phone carriers, with the most significant drop coming in North America. It warned that it did not see a quick rebound and predicted profit would only recover in late 2023 and 2024. It lowered its full-year profit guidance and said it would not pay dividends for the current quarter.

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The company’s shares are still up 17% this year. However, investors have been worried it is losing momentum as a global economic slowdown prompts companies to scale back on capital expenditure and boost cost savings. The global economy is now in its most prolonged contraction since the Great Recession of the 1930s. Fear of an impending recession has forced many companies to cut budgets and hold off on device upgrades and digitalization plans.

Ericsson, working to cut costs in response to the downturn, saw its underlying working revenue margin fall to 16.4% in the quarter, compared with a mean forecast of 16.1%. Its chief executive, Borje Ekholm, told reporters that the group would aim to raise the underlying working margin to 15-18% within the next three years and aimed to accelerate its amortization of deferred expenditure.

The company also announced a rights issue of up to SEK 2.5 billion ($26 million), with the two largest shareholders, AB Investor, and AB Industrivarden, taking up to a combined 29%. The proceeds will be used to reduce debt. The company has 12.8 billion SEK in outstanding loans, including its current accounts loans, which the rights issue will reduce. The rights issue is due to close on July 24.