Faced with an uncertain economic environment and a downward investment trend, two of the world’s leading network providers, Nokia and ericssonhave assured that they will reduce their investments in the infrastructures of the new 5G mobile phone network. This announcement was made during the presentation of its first quarter accounts, which show that telecommunication operators are facing a truly complex situation.
If investment in telecommunications networks slows down, connectivity and global demand for communication services will slow down. The economic downturn and strict legal requirements and changes in government regulations and policies are leading companies to make this complex decision.
Nokia and its particular economic balance
In this context, Nokia published economic profits lower than initial estimates, mainly due to the slowdown in demand for 5G equipment in some leading markets in the world. His adjusted profit was positioned at 479 million euros, 17% less than during the first quarter of 2022.
This decrease is due to the drop in investment in new telecommunications network infrastructure, an initiative that some operators are following and that affects their network division. Your subsidiary Nokia Technologies it has contributed less to growth, something that has been particularly noticeable in North America. However, the group experienced a remarkable growth in India thanks to the investment of the country’s operators in 5G networks.
Nokia maintains its forecast of closing the year with an operating margin between 11.5% and 14%, exceeding the 12.5% registered last year. They are aware of the difficult situation in which the average cost of clients has been slowed down, added to the fact that their shares fell by more than 8% after presenting the accounts. During the last two years, the titles have been trading at their lowest prices.
Ericsson numbers
Its economic figures have been better than expected, although Ericsson has perceived a Major setback in 5G investment by many operators in some of its main markets. This slowdown for the new mobile network would have a negative impact on the deployment of innovative services and applications.
Looking ahead to the second quarter, expects Ebitda growth of more than half a digit. All this in a context of adjustment after announcing an 8% reduction in its workforce in February, affecting some 8,500 employees.
Regarding its shareholding power, it fell above 8% during the first quarter, trading at the lowest prices since spring 2018. Given this situation, Credit Suisse analysts cut Ericsson’s share price target from 61 to 52 SEKwith underweight recommendation. For its part, the activist fund Cevian Capital AB, despite having 5% of the company’s capital, assured that its economy is below its possibilities.
The most imminent consequences
The reduction of investments, by the operators, in new telecommunications networks brings with it a delay or limitation in the development of applications and services such as 5G, IoT and AI. And it is that thanks to 5G technology it would be possible to promote innovation in these areas. All of this would have a negative impact on the economy and in the competitiveness of the countries.
To this is added the difficult bureaucratic situation that telecommunications operators face. And there are many restrictive policies and measures around 5G and network security. In fact, many countries have imposed restrictions on the participation of some providers in building their 5G networks.
Decline in mobile phone sales
Global smartphone sales have fallen during the first quarter by 12%, accumulating this market five consecutive quarters of setbacks. According to data from the consultant canalys, consumer demand has remained stagnant despite lower prices and major trade promotions. So companies like samsung have seen their market share reduced from 24% to 22% and Xiaomi from 13% to 11%. On the opposite side of the coin we find Manzana already Oppowhich grew from 18% to 21% and from 9% to 10%, respectively.
