Rough time for telcomm vendors but sees light ahead

There have been many reports over the past year about the recession and hence the effects on the telecomm companies.

The verdict was already out that the telecom equipment vendors are bracing for what is expected to be a fairly rough round of first-quarter earnings, with the global economic recession cutting into demand from both consumers and carriers alike, according to a report in the Wall Street Journal

The report also forecasted that some of the world's biggest European equipment vendors, found that while some would fare better than others, 2009 will generally be more difficult than 2008 for the companies.

Amid all these developments came the report yesterday when Nokia reported a worse-than-expected 90 per cent slump in first quarter profits.

This is Finnish mobile group's worst results since 2001 and rightly so, blamed on to the global economic downturn which has hit phone sales.

Mobile phone companies have been hit hard by a sharp drop in consumer spending. Nokia said it sold 93.2 million handsets during the first quarter, down 19 per cent from a year earlier and down 18 per cent from the fourth quarter.

Sony Ericsson, which has its headquarters in London, has also announced today that it’ll be slashing another 2,000 jobs around the world. The latest cost-cutting drive comes as the company posted a €293m (£258m) net loss for the first three months of the year.

However Nokia still maintained its market share which remained steady at 37 percent. The company also calmed jittery investors by reaffirming its prediction that the mobile market would shrink by 10 per cent this year, and the decline would level out in the second half of the year. It retained its operating margin forecast for its devices and services business.

Although the above news looks to be shocking but it didn’t stop the company’s shares to rise 9.5 per cent to €11.05 on the Helsinki stock exchange. The primary reason for the rise is that the investors were cheered by the company holding steady on its outlook after a grim quarter.
Similar to Nokia, Sony Ericsson too has vowed to return to profitability as quickly as possible thus calming the investors.

Like many other analysts especially in the financial world, telecom vendors like Nokia and Sony Ericsson too believe that there are nascent signs of relative stability going into the second quarter.

I still believe it’s a little bit too early to call a bottom on demand in the mobile devices business.

However most of the analysts expect that companies to return to profitability in the second half of 2010 thus showing a light at the end of the tunnel.