TAKING THE PULSE: European network equipment vendors and mobile
phone manufacturers are not expected to post any significant
improvement in third quarter earnings compared to the previous
quarter as market conditions remain harsh and handset makers in
particular face stiffening competition in the run up to the crucial
end-year trading period.
Chip makers including Samsung Electronics Co Ltd (005930.SE) and
Texas Instruments Inc.(TXN) have recently given positive forecasts
for third-quarter sales and earnings, raising some hopes for a
resurgence in a mobile phone market still set to contract
significantly overall this year.
Still, even as handset demand begins to improve the market is
getting increasingly crowded with smartphones, and analysts will
closely eye market share developments, particularly at the
high-end.
Finland's Nokia Corp. (NOK), the world's largest handset maker,
in July said it expects its market share to remain roughly flat
against previous expectations for growth, and downgraded its margin
guidance.
Rival Sony Ericsson, the joint venture between Japan's Sony
Corp. (SNE) and Sweden's Ericsson (ERIC), said its market share
fell in the second quarter from the first, and guided for a global
handset market contraction of at least 10% in 2009 from 2008.
There are some concerns for intensifying price pressure in the
telecom equipment market, and market-leader Ericsson will suffer
from an appreciation of the Swedish krona which has strengthened
around 12% against the U.S. dollar over the past three months.
At the time of the company's second quarter report, Ericsson
Chief Executive Carl-Henric Svanberg warned that the mobile
infrastructure market had begun to feel some impact from the
economic downturn. Meanwhile, rival Nokia Siemens Networks forecast
that infrastructure markets would shrink 10% in 2009 from 2008.
Ericsson is expected to post stronger third-quarter numbers than
Nokia Siemens Networks, which has struggled in previous quarters,
but there are some concerns that the higher expectations on the
Swedish company could make for a disappointing report. Paris-based
rival Alcatel-Lucent isn't expected to report any major earnings
improvement in the third quarter as carrier spending remains weak
in its main markets
COMPANIES TO WATCH:
---- Nokia ---- (Oct. 15)
MARKET EXPECTATIONS: Sales and earnings are expected to fall
from a year earlier, but to improve from the previous quarter.
Analysts expect good sales of cheaper phones, helped by Nokia's
economies of scale, but the company risks losing further high-end
market share to competitors such as Samsung and Apple Inc.
(AAPL).
Nokia Siemens Networks, the joint venture with Siemens AG, has
struggled in previous quarters with falling market share and harsh
business conditions, and downgraded its outlook for both market
share and market development. The third-quarter result is also
expected to be weak, and little changed from the second
quarter.
MAIN FOCUS: The average selling price of Nokia's phones is
expected to fall because of the relative success of its low-end
devices. The market will therefore keep a close eye on the
company's margins, which could come under pressure.
Nokia has recently ramped up its focus on services and announced
new products including a mini-laptop, but these are not expected to
give any substantial short-term earnings boost.
Nokia Siemens Networks will have to boost sales in order to
improve its profits so there are some expectations that it might
cut prices.
---- Sony Ericsson ---- (Oct. 16)
MARKET EXPECTATIONS: The handset maker, a joint venture between
Ericsson and Japan's Sony Corp. (SNE), has seen earnings and market
share fall so far in 2009 and the negative trend is not expected to
improve much in the third quarter.
The economic downturn has been particularly damaging to the
middle tier of the mobile phone market, where Sony Ericsson has a
strong presence. The company's small production volumes make its
situation particularly difficult.
Still, the Sony Ericsson's earnings may improve slightly from
the second quarter of the year, helped by cost-cutting measures and
a stronger overall market.
MAIN FOCUS: Sony Ericsson is launching a set of new high-end
phones during the fourth quarter and there are some hopes that
these will help reverse its negative market share development.
Comments on the financial outlook will be closely watched.
---- Telefon AB L.M. Ericsson --- (Oct. 22)
MARKET EXPECTATIONS: Ericsson's business has been relatively
stable in the economic downturn, and analysts expect its earnings
to improve slightly from the previous quarter.
However, Ericsson has so far in 2009 benefitted from a weak
Swedish krona against the dollar and euro, and since the Swedish
currency has appreciated as of late there are concerns that this
will hurt the company's sales.
MAIN FOCUS: Market watchers will keep a close eye on Ericsson's
margins. Like in previous quarters, the company's service business
is expected to report a strong performance, and the scope for
margin improvement may be limited because margins tend initially to
be lower on services than on equipment sales.
Although sales volumes are seen quite stable, there are concerns
that some competitors may push down prices in the sector, hitting
revenue.
---- Alcatel-Lucent (ALU) ---- (Oct. 30)
MARKET EXPECTATIONS: Analysts don't expect a major improvement
in Alcatel-Lucent's third-quarter results as the carrier market
remains difficult, in particular in Europe, as telecommunications
operators continue to be selective about investments.
However, in line with the predictions of Chief Executive Ben
Verwaayen, profitability is expected to improve over coming
quarters. Alcatel-Lucent is expected to reiterate that its expects
to break even for the full year at an adjusted operating level,
even though some analysts remain skeptical that the group will
achieve this goal.
MAIN FOCUS: The market is keen to hear comments on how carrier
spending is progressing, in particular in the U.S., to gauge when
the market may start to recover. Analysts will keep a close eye on
Alcatel's U.S. wireless revenue as the big U.S. telecom companies
are expected to increase capital expenditure over the second half
of the year. Alcatel-Lucent makes about a third of its sales in the
U.S.
Debt, which has long been a worry for investors, is less of a
concern as most analysts believe the group's balance sheet is
improving and the liquidity risk off the table. Alcatel-Lucent has
its costs under control and will be able to meet its cost-cutting
targets, analysts say.
-By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099;
gustav.sandstrom@dowjones.com and Ruth Bender, Dow Jones Newswires;
+33 1 40 17 17 54; ruth.bender@dowjones.com