Fitch downgrades equipment sector to negative

International credit rating agency Fitch Ratings has downgraded its expectations for the global telecom equipment sector for 2009 to "negative," indicating a turbulent year ahead for the industry.

A new Fitch report expects declining markets in both the handset and infrastructure markets.

The handset industry in particular faces a more significant decline than seen during the 2001 downturn, as vendors struggle with the global economic crisis, with operators reluctant to continue with aggressive handset subsidies.

Fitch is predicting a double-digit decline in handset sales, and also expects the handset upgrade cycle will be extended.

While market leader Nokia will not be spared the effects of the downturn, the company is in a better position to handle the downturn than its competitors and is likely to emerge from the crisis with an even greater market share than it currently holds, the report adds. This prediction is in line with Nokia's expectations.

Infrastructure vendors with healthy liquidity, some margin protection and limited refinancing risk are still attractive or neutral investment options, but the relative weak performance of giants such as Alcatel-Lucent and Nortel presents concern for this sector as well.

The performance of Nortel in particular has led to speculation over the company's long-term sustainability, the report adds.

According to Stuart Reid, Senior Director at Fitch's European TMT team, the unstable climate may lead to a shake-up of the sector. "While credit conditions are not conducive for large-scale M&A, further industry consolidation could be seen," he said.