Business / Industries

Telecommunication equipment sellers suffer slowdown

By Shen Jingting (China Daily) Updated: 2012-08-30 09:58

The world's telecoms equipment vendors are suffering from an industry downturn, and analysts warn the difficult phase is not likely to go away soon.

Telefon AB LM Ericsson, the world's largest telecoms equipment provider, saw its net profit fall 64 percent to 1.11 billion Swedish kronor ($159 million) in the second quarter as operators reined in spending on upgrades to their networks.

Huawei Technologies Co Ltd, the world's second-largest telecommunications equipment maker by sales, posted a 22 percent fall in first-half operating profit, citing the "significant challenge" of the global economy and the telecoms equipment market. ZTE Corp, posted a 68 percent drop in the first half net profit to 245 million yuan ($38.6 million).

In addition to weaker market demand, Liu Peng, vice-president of ZTE, told China Daily that currency volatility imposed "a devastating blow" on ZTE and ate away at profits. "The comparative weakness of the euro against the stronger yuan meant that earnings from European sales were lower than expected," he said.

Alcatel-Lucent announced in July that it was about to axe 5,000 jobs, end unprofitable services contracts and exit or restructure in countries where it is weak. It also wants to squeeze more money out of its patent portfolio.

The proposals are more limited than rival Nokia-Siemens Networks' pledge to cut one-quarter of its staff - 17,000 jobs - and sell a raft of fixed-network product lines to focus more on mobile equipment, Reuters reported.

"We do not see a clear signal that 'the bad time' is coming to an end. Network infrastructure suppliers will continue to be under pressure," said Ji Chendong, an analyst with KPMG LLP.

Mobile operators have been reducing their investments as they grapple with a sharp downturn in their own revenues, Ji said.

"Unless the 4G rollout really takes off or the 3G commercial services market matures across the world, the world's telecom equipment vendors are not likely to embrace a strong rebound," he said.

However, Chinese suppliers such as Huawei and ZTE may fare better than their Western competitors in the second half of 2012 because spending on Chinese mobile networks is expected to pick up, analysts said.

"The domestic telecom market will show stronger demand in the second half because major operators have delayed their procurement plans this year," said Liu at ZTE.

According to Research and Markets, the global telecoms equipment market will grow at a compound annual growth rate of 3.6 percent over the period 2010 to 2014.

Countries in the Asia-Pacific region, especially China and India, are likely to contribute most to sales with one-third of the total.

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