Finnish company revises profit outlook, Swedish firm expects stable or slightly improved margins
Nokia and Ericsson shares declined as telecom suppliers warned of profit and sales impact from reduced consumer spending amid the cost of living crisis.
Nokia revised its annual sales forecast and lowered profit margin expectations due to high inflation and rising interest rates affecting consumer spending. The Finnish company, which previously announced 10,000 job cuts worldwide to compete in the 5G telecom equipment market, adjusted the projected sales range for this year from €24.6bn-€26.2bn to €23.2bn-€24.6bn.
Nokia’s shares plummeted by 9.6% on Friday, marking the largest drop in two years, as the company also trimmed its profit margin range from 14% to 13%.
“The decline in demand expectations for the latter half of the year is influenced by both the macroeconomic climate and customers’ inventory adjustment,” stated the company, suggesting that cautious consumers are refraining from upgrading devices like mobile phones.
Heightened inflation, rising interest rates, and delayed projects, particularly in North America, are increasingly affecting customer spending intentions.
The company, having recently concluded a two-year initiative to downsize its global workforce and reestablish a cost foundation for future investments, suggested the possibility of further reductions in the future.
Nokia stated that it has been actively controlling costs throughout the organization to safeguard profitability. Amidst this uncertain period, Nokia will persist in implementing measures to stay aligned with its long-term objectives of outpacing market growth.
On the other hand, Ericsson’s shares declined by 8.7% to their lowest point since 2018. The Swedish telecom equipment manufacturer disclosed that profit margins for the third quarter are projected to remain steady or experience a slight increase, deviating from analyst expectations of 10%.
Börje Ekholm, the President and CEO of Ericsson, expressed expectations for a gradual market recovery towards the end of 2023 and further improvement in 2024.
In February, Ericsson unveiled its intention to reduce costs by eliminating 8,500 positions worldwide. Similar to Nokia, Ericsson highlighted the challenging market conditions in North America, where the company encountered a significant sales decline in the second quarter. However, it also noted some compensatory growth in India.
The impact of the cost of living crisis is compelling telecom companies to reduce staff and expenses in order to remain competitive. Furthermore, these companies are implementing price hikes that surpass inflation rates for their customers.
In May, Vodafone, a mobile operator, unveiled plans to eliminate 11,000 jobs globally within the next three years as part of a €1bn cost-saving strategy.
BT recently announced its projection of cutting 55,000 jobs by 2030, which accounts for approximately 40% of its total workforce. The reasons behind these cuts include the completion of 5G and full-fibre broadband network constructions, as well as the integration of artificial intelligence throughout the organization.
