IHS Global Insight Perspective | |
Significance | Both Ericsson and Nokia Siemens Networks have seen their quarterly net sales decreasing by 9% against the same quarter in 2009. Ericsson's operating income was down 9%, whereas NSN posted a positive margin in a second consecutive quarter. |
Implications | With the two companies representing over half of the network equipment industry, the results reflect a currently mixed situation in operator spending, which has the carriers in developed markets holding up their investment and those in emerging markets cutting it down. |
Outlook | The rest of 2010 is set to see some very significant deals, as the vendors bid for a growing number of 4G contracts. |
Network equipment vendors Nokia Siemens Networks (NSN) and Ericsson have released their financial results for the first quarter of 2010. In the following, IHS Global Insight takes a look at the results of both companies, as well as at what they indicate on the network gear market as a whole.
Ericsson recorded quarterly net sales of 45.1 billion Swedish kroner (US$6.2 billion), down 9% year-on-year (y/y), with operating income excluding joint ventures (JV) amounting to 4.5 billion kroner, down 4% y/y. The operating margin was 10%, stable against the first quarter of 2009.
For the same period, NSN has reported net sales of 2.7 billion euro (US$3.6 billion), down 9% y/y, and operating profit of 15 million euro, against the loss of 122 million euro a year earlier. The operating margin was 8.6%, compared to 5.5% in the first quarter of 2009.
Outlook and Implications
- Mixed Outlook on Operator Spending: The quarterly performance of market leader Ericsson and its closest rival, NSN, which together account for slightly over half of the world's network equipment market, show rather clearly that operator capex did not pick up in the first three months of 2010, with both companies experiencing revenue decline of similar scale. This seems to reflect a somewhat mixed trend in the world's operator market. On one hand capex levels in the developed markets—where 3G uptake is high, 4G upgrades increasingly immediate, and managed services deals more commonplace—the sales have generally held up fairly well against the previous year. On the other hand, at the same time carriers in the emerging markets have been very cautious with their spending in new infra, as they normally have their basic 2G networks already in place and the unfavourable economic climate—as well as certain regulatory constraints, such as the lack of 3G licensing—keeps them from investing further in a full scale. A similar pattern shows also in some higher-end markets, with for instance Ericsson seeing its Mediterranean operating region—previously the largest in terms of net sales—declining notably (17% y/y) on the back of low investments in Spain and Greece, two macroeconomic trouble spots.
- Nokia Siemens Networks Alive and Kicking after Intensive Care: One highlight of the first quarter is definitely that NSN posted an operating profit, not loss, for a second consecutive quarter. IHS Global Insight does not really view this, as such, a reason for sigh of relief from NSN, rather than a more or less direct reflex to the unit's massive cost-cutting drive—for, if after all its job and other cuts, NSN would still post a negative operating margin then its situation could be described as very difficult indeed. The slimmer cost base, which essentially allows NSN a better bidding hand in procurements, is nonetheless achieved at the right moment, as the company now stands a realistic chance to punch above its overall weight in 4G contracts and thus improve the margins further. The distribution of the 4G contracts that have been announced thus far do indicate that NSN has a potent portoflio in place. Going forward, this makes it likelier that, for Nokia's group-wide performance, the network unit could eventually turn from a liability into an asset. By the same token, having NSN in a fitter (and thus more sellable) shape would enable Nokia and Siemens to exit the JV, should they decide to do so, since they might now be even able to find a buyer.