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Nokia and Ericsson Shares Decline on Telecom Demand

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Introduction

Nokia and Ericsson, two fierce competitors in the telecommunications industry, experienced a simultaneous decline in their stock prices on Friday due to a downbeat outlook for demand. This decline is primarily attributed to reduced spending by telecom companies in North America.

Nokia’s Sales Outlook and Margin Guidance

On Friday, Nokia (ticker: NOK) revised its sales outlook and narrowed its margin guidance, citing a weaker demand forecast for the second half of the year. As a result, Nokia’s American depositary receipts witnessed a significant drop of over 9% in premarket trading.

According to a statement released by Nokia, “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.”

In light of these circumstances, Finland-based Nokia has adjusted its expected operating margin range for this year to 11.5%-13%. Additionally, the company now anticipates net sales between €23.2 billion and €24.6 billion ($26.1 billion-$27.58 billion) for this fiscal year.

It is worth mentioning that Nokia had previously projected annual net sales of €24.6 billion-€26.2 billion and an operating margin ranging from 11.5% to 14%.

Ericsson Facing Challenges in North America and India

Ericsson, one of the leading players in the telecommunication equipment industry, has recently experienced a decline in sales in North America. However, the company has managed to partially offset this setback with growth in India. In response to the market conditions, Ericsson had previously announced its plans to reduce its global workforce by 8% as a cost-cutting measure.

In an official statement, Ericsson’s CEO, Borje Ekholm, expressed his optimism about the future prospects of the market. He stated that they expect a gradual recovery in late 2023, with further improvement anticipated in 2024.

While Ericsson’s second-quarter earnings met expectations, the company’s guidance for the coming quarter fell below consensus. The Swedish firm projected that its margin on earnings before interest, taxes, and amortization for the third quarter would align with or slightly exceed the 5.7% achieved in the second quarter. However, analysts at Citi had anticipated an improvement in the margin to reach around 10%.

As a result of these developments, American depositary receipts of Ericsson experienced a significant decline of over 8% during premarket trading on Friday.

In terms of financial performance, Ericsson reported a net loss of 686 million Swedish kronor ($67.2 million) for the second quarter, compared to a profit of 4.5 billion kronor in the previous year. Despite this, sales rose by 3% to 64.44 billion kronor compared to the same period last year. However, when adjusting for organic growth and currency fluctuations, sales were down by 9%.

Overall, Ericsson continues to face challenges in key markets such as North America, while also striving to capitalize on growth opportunities in India. The company’s future performance will largely depend on its ability to navigate these headwinds and capitalize on emerging trends in the telecommunications sector.

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