Telecom network makers face another tough year?

Today’s financial reports from Nokia and Ericsson highlight the challenges faced by telecom equipment manufacturers due to a slowdown in telecoms spending and delayed 5G network expansion plans. Both companies experienced a decline in their shares, with Nokia’s down 9.6 percent and Ericsson’s down 8.7 percent.
telecom equipment revenueDell’Oro Group’s mobile RAN 5-year forecast report says global RAN is projected to decline at a 1 percent CAGR over the next five years.

The less advanced 5G regions are expected to perform better while the more developed 5G regions, such as North America and China, are projected to record steeper declines. 5G is projected to grow another 20 percent to 30 percent by 2027, which will not be enough to offset steep declines in LTE, Dell’Oro Group said.

Total worldwide telecoms revenues from mobile and fixed broadband services will grow 14 percent between 2022 and 2027 to reach €1.2 trillion according to latest research from Omdia – released in October 2022. Monthly ARPU (Average Revenue Per User) combined across both mobile and fixed broadband will fall by 4.2 percent from €7.48 in 2022 to €7.16 in 2027.
Telecoms services revenue forecast
Telecom operators in China and North America keep their Capex very high as against mobile service providers in India and other regions. Telecom network vendors do not rely on Indian operators for growing their business due to low Capex.

The poor performance by Nokia and Ericsson also indicates that top telecom operators are not spending towards network expansion. Huawei and ZTE are yet to reveal their financial performance for the first half of the current year.

The economic uncertainty and fears of an impending recession have resulted in telecom businesses reducing budgets and postponing device upgrades and digitalization projects. This has directly impacted the plans of Nokia and Ericsson to expand 5G networks and broadband connections. The companies had anticipated a pickup in demand in the second half of the year, particularly in North America, but now expect the recovery to be delayed until 2024.

To cope with the challenging market conditions, major telecom firms have been implementing cost-cutting measures and laying off employees. Vodafone announced plans to cut 11,000 jobs globally, and BT aims to reduce its headcount by 55,000 by 2030.

Nokia revised its annual outlook, lowering its sales forecast for 2023 to 23.2-24.6 billion euros from the previous range of 24.6-26.2 billion euros. The company’s network infrastructure and mobile networks businesses were particularly weak, leading to a narrowing of its operating margin range outlook.

Ericsson’s organic sales dropped 9 percent in Q2 2023. Ericsson said its networks business, which accounts for majority of its revenue, saw record build-out speed in India, partly mitigating expected softening in other markets, notably North America. Ericsson’s networks business revenue dropped 13 percent.

Ericsson reported a significant decline in second-quarter adjusted operating profit, mainly driven by reduced spending among operator clients, notably in North America. However, the company experienced some growth in India. Ericsson expects a gradual recovery in the market by late 2023, with further improvements in 2024.

Both companies acknowledged the increasing demand for 5G networks, which is expected to drive future growth. The proliferation of 5G and fixed wireless access (FWA) technology is projected to lead to a significant increase in data traffic. Ericsson highlighted the need for investments to meet the demand for network quality and efficiency, noting that a large portion of base station sites outside China still require updating to 5G mid-band technology.

Analysts expressed cautious optimism about the future prospects of Nokia and Ericsson. The impact of their cost-cutting activities and strategic initiatives may take time to materialize, with results potentially becoming more apparent by the end of the year.

Overall, the reports from Nokia and Ericsson demonstrate the challenges faced by telecom equipment manufacturers in a volatile market, influenced by economic conditions and consumer spending patterns. The delayed expansion of 5G networks and reduced investments have impacted their financial performance, requiring these companies to navigate through a challenging landscape while preparing for future growth opportunities in the telecommunications industry.