Finnish company lowers profit expectations, while Swedish firm expects flat or ‘slightly up’ margins
Shares in Nokia and Ericsson fell after the telecommunications equipment suppliers warned that profits and sales were being hit by a slowdown in spending as the cost of living crisis hit consumer spending.
Nokia moved to cut its annual sales forecast and lowered its expectations on profit margin this year citing the knock-on effect of high inflation and rising interest rates on consumer spending.
The Finnish company, which in 2021 announced up to 10,000 job cuts globally in an attempt to compete with rivals in the race to supply 5G telecoms equipment, cut the range of expected sales this year from between €24.6bn (£21.1bn) and €26.2bn to €23.2bn and €24.6bn.
Shares in Nokia, which also reduced the top end of its range for profit margins from 14% to 13%, plunged by 9.6% on Friday – the biggest fall in two years.
“The weaker demand outlook in the second half is due to both the macroeconomic environment and customers’ inventory digestion,” the firm said, indicating belt-tightening consumers are holding back on upgrading devices such as mobile phones.
“Customer spending plans are increasingly impacted by high inflation and rising interest rates along with some projects now slipping to 2024 – notably in North America.”
The company, which this year completed a two-year plan to reduce its global workforce to “reset” its cost base for future investment, hinted that more cuts could be on the way.
“Across the group, Nokia has been proactively managing costs to protect profitability,” it said. “As it progresses through this period of uncertainty, Nokia will continue to take measures to ensure it remains on track towards its long-term targets of growing faster than the market.”
Shares in Ericsson fell by 8.7% to the lowest level since 2018 after the Swedish telecoms equipment maker said profit margins would be only flat or “slightly up” in the third quarter, compared with analyst consensus expectations of 10%.
“We expect that the market will see a gradual recovery in late 2023 and improve in 2024,” said Börje Ekholm, the president and chief executive of Ericsson.
In February, Ericsson announced plans to cut 8,500 employees globally to reduce costs. Like Nokia, Ericsson pointed in particular to the deteriorating market in North America, where the company experienced a “sharp decline” in sales in the second quarter, although it said this was partly offset by growth in India.
The cost of living crisis is forcing telecoms companies to cut staff and costs to compete, while also introducing inflation-busting price increases for customers.
In May, the mobile operator Vodafone announced that it would cut 11,000 jobs globally over the next three years as part of a €1bn savings strategy.
BT recently said it expected to cut 55,000 jobs by 2030, about 40% of its total workforce, because of factors including the completion of building 5G and full-fibre broadband networks and the implementation of artificial intelligence throughout its business.
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