Tech earnings to reflect low demand
By Philip Lagerkranser
Bloomberg News
STOCKHOLM — Ericsson AB, SAP AG and Nokia Oyj probably will provide more evidence of sputtering business spending on technology products when they release earnings this week, investors said yesterday.
Analysts forecast that Ericsson, the No. 1 maker of cellular networks, will report a sixth consecutive quarterly loss on Friday. SAP, which produces business management software, may lower its forecast for annual revenue on Thursday. Nokia, Ericsson's closest rival, has cut its sales forecast five times this year.
"Companies aren't ready to invest because end markets aren't picking up," said Torsten Gruendel, who helps manage $54 billion at Commerzbank AG and holds shares in the three companies. "They've decided to focus on cost cuts."
A faltering economic recovery and plunging stocks have battered the confidence of businesses and consumers. Corporate customers, who have seen their sales and earnings stagnate for two years, are holding back on technology spending until they see signs that a recovery is taking hold.
In the third quarter, the Dow Jones Stoxx 50 Index fell the most since the final three months of 1987.
Ericsson, Nokia and SAP, together with Royal Philips Electronics NV, which reports today, have seen their market values plunge this year, wiping out $186 billion combined. Ericsson shares have fared the worst, dropping 89 percent.
Motorola Inc., the No. 2 mobile-phone maker, is expected to report today its first quarterly profit since 2000, helped by cost cuts undertaken after a 9 percent drop in sales, analysts said. The company has cut about 48,000 jobs.
Ericsson and Nokia have seen sales suffer as phone companies worldwide curb investment in networks and struggle to reduce debt amassed paying for takeovers and wireless licenses.
Recent reports from U.S. rivals indicate technology spending is not about to rise.
Lucent Technologies Inc., which competes with Ericsson and Nokia for phone-equipment orders, said last week it was cutting another 10,000 jobs and expected sales to fall about 20 percent in fiscal 2003. Juniper Networks Inc., the second-largest maker of gear that directs Internet traffic, said Thursday that sales would not pick up in the fourth quarter.
Ericsson, Nokia, SAP and Philips all have been trimming costs, through such measures as selling or closing divisions, slashing research budgets, farming out manufacturing and firing employees.
"Profit right now won't come from higher sales. It's all coming from cost-cutting," said Corne van Zeijl, who manages about 2.2 billion euros, including Philips shares, at Zurich Leven in the Hague.
But "one can't keep on slashing costs forever," van Zeijl said. "Sales have to start rising at some point."
