Three major wireless vendors gave mixed signals last week as Nokia Corp. posted a profit, while Nortel Networks Inc. and L.M. Ericsson reported losses in tune with market consensus.
Both Nortel and Ericsson deepened the bleak news with new rounds of layoffs; Nortel firing 5,000 more workers and Ericsson 12,000.
All three companies cited the sagging economy and a drop in demand as playing critical roles in their performances, which implied that leading phone maker Nokia would have recorded more robust results. The Finnish vendor had warned earlier in the quarter of a drop in sales.
Nokia posted a $1.27 billion pre-tax profit, and a net profit of $948 million, representing a 15-percent jump compared with $822 million a year earlier. It said it recorded $7.2 billion in sales, up from $5.9 billion a year ago.
“I am more than pleased with our first-quarter numbers,” remarked Jorma Ollila, Nokia’s chief executive. “We were able to extend our leadership while managing the day-to-day challenges of a demanding economic environment.”
Ericsson reported a loss of $487 million, excluding a $545 million gain from the sale of Juniper Networks Inc. The Swedish company said sales fell five percent from $589 million last year to $546 million this year.
The company showed no confidence in an immediate market upswing, cautioning that it expects a further dip in handset sales and mobile networks, a reflection of the general pessimism about the economy.
Ericsson, which had announced layoffs earlier this year as part of what it calls an efficiency program, has raised the number of its fired employees to 22,000 of its 107, 000 workers, ranking with Motorola Inc. in vendors that have cut more than 20,000 workers in less than six months. Motorola has laid off 26,000 workers since last December.
“With no sign of a short-term turnaround,” commented Kurt Hellstrom, president and chief executive of Ericsson, “we are adjusting to these challenging circumstances by reducing our cost base by more than 20 billion Kronor ($1.9 billion). Improving cash flow will be given highest priority.” He said, “This will give us a business that is smaller, more manageable and has lower risk.”
Also a part of its efficiency program, Ericsson had outsourced its handsets division to Flextronics Inc.
Nortel Networks, which reported its results ahead of the other two, posted a loss of $2.58 billion, or 82 cents a diluted share, against a loss of $730 million, or 26 cents a share, a year earlier.
Excluding certain items, Nortel noted that it would have posted a loss of $385 million, or 12 cents a share, in harmony with estimates of market analysts.
The Canadian-based manufacturer said its revenue fell 2.2 percent to $6.18 billion from $6.32 billion a year earlier. It said its operating loss would stand at 10 cents to 12 cents a share on revenue of around $6.1 billion.
“Our revenues in the quarter reflected reduced capital spending by service providers and enterprises resulting from tighter capital markets and a severe slowdown in the U.S. economy,” said John Roth, president and chief executive officer of Nortel Networks.
With the additional 5,000 job cuts, Nortel’s number of layoffs will swell to 20,000 by midyear. The company had earlier in the quarter announced cost-saving measures, which also included a stop on first-class airline seats and irrelevant phone calls.
Nortel Networks has spent up to $1.6 billion on 3G contracts, which include such operators as BT Cellnet, T-Mobile and Xfera, ramping up its status as one of the major vendors in the European market.
Nortel rode into the year on an optimistic wave and almost ranked with Nokia as companies seemingly immune to the buffetings of the economy until it announced a profit warning and faced lawsuits for allegedly misleading the market.
Ericsson remains the world leader in the 3G-infrastructure environment.
“Substantial demand for customer financing for the buildout of 3G networks continues,” said Ericsson. Ericsson counts 26 wideband CDMA supply agreements so far, some of them commercial. It also has 68 GPRS upgrades with “55 implemented and several already taken into commercial service,” according to its earnings report.
Prior to its report, Nokia had raised high expectations over its earnings picture with a series of billion-dollar vendor financing deals in Europe with Orange, one of Europe’s dominant operators, T-Mobile in Germany and Italy’s Wind. These audacious contracts came against the background of lean vendor financing pockets in the market and Nortel Networks’ withdrawal from staking its money in infrastructure deals in the immediate future.
Analysts saw Nokia’s move as a necessity if the company wants to have a grip on essential 3G markets as well as reviving confidence in 3G, in spite of the general bleak economic picture. Nokia earlier announced plans to close a plant in Irving, Texas, a round of layoffs of about 400 workers and the transfer of its manufacturing operations to Mexico and Asia.
