By Martin Coulter
LONDON (Reuters) -Finland's Nokia (NYSE:NOK) cut its annual outlook on Friday and Swedish rival Ericsson (BS:ERICAs) delivered second-quarter results slightly above expectations, as a slowdown in consumer spending hit sales of telecom gear.
Nokia's shares dropped 7.8% in early trade to their lowest since April 2021, while Ericsson shares were down 7.7%.
Fears of an impending recession have forced businesses to cut their budgets and hold off on device upgrades and digitalization plans, hurting telecom firms like Nokia and Ericsson in their push for widespread 5G adoption and more broadband connections.
Nokia reported preliminary second-quarter sales of 5.7 billion euros ($6.4 billion), while analysts polled by Refinitiv had estimated sales of 6 billion euros on average.
"The companies thought that demand would pick up in the second half of the year, particularly in North America, but it now looks increasingly clear that it will be pushed to 2024," Kimmo Stenvall, analyst at OP Markets, told Reuters.
Nokia said it now expects 2023 sales of 23.2-24.6 billion euros ($26.1-$27.6 billion) against 24.6-26.2 billion euros estimated previously.
Weakness in Nokia's network infrastructure and mobile networks businesses prompted the company to narrow its comparable operating margin range outlook to 11.5-13% from 11.5-14% earlier.
Meanwhile, Ericsson reported a 62% fall in second-quarter adjusted operating profit, slightly above market expectations.
Citing increasing demand for 5G, Ekholm predicted the market would undergo a "gradual recovery" in late 2023, and improve in 2024.
Net sales rose 3% to 64.4 billion crowns and topped the 63.9 billion expected by analysts, Refinitiv Eikon data showed.
Ericsson's reported gross margin for the second quarter fell to 37.4% from 38.6% the previous quarter.
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Richard Webb, analyst at CSS Insight, told Reuters the company’s quarterly earnings were "Okay, but not stellar".
"It’s a little lukewarm," said Webb, noting that Ericsson’s business strategy may take until the end of the year to show results.
"In a couple of quarters, we’ll be in a better position to judge how their strategy is working. I remain cautiously optimistic."
($1 = 10.3374 Swedish crowns)
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