Year in Review: Ericsson, Nokia stumble through market slowdown

radio tower (pixabay)

FierceWireless is wrapping up an eventful 2016 by taking a hard look at five of the most important trends and developments that emerged in the market this year. Today’s final installment in the series documents what was a brutal year in the telecom gear market for Ericsson and Nokia.

The news: Investors hoping Ericsson would turn things around quickly after Hans Vestberg stepped down as CEO in July couldn’t have been pleased with how the rest of the year played out. Vestberg was ousted less than a week after the company posted a 26 percent year-over-year drop in net sales during the second quarter, and things didn’t get much better in the following months. Ericsson announced plans in October to slash 3,000 jobs in its native Sweden due to weak demand, and a week later the company sent shares plunging after it reported a 14 percent year-over-year drop in sales. Things got worse this month on reports that Ericsson is considering cutting 1,000 more jobs in Italy after losing a key contract there.

For its part, Nokia finished 2015 on a high note, posting an operating profit of 14.6 percent in its network gear business in the final quarter of the year, but its early-year warning that sales would slow came to pass. First-quarter net sales were down 8 percent year over year and shy of analysts’ estimates, and the company followed that with a second straight quarterly loss during the subsequent period. Things didn’t improve much in the third quarter as sales fell to $6.5 billion led by a 12 percent drop in network revenue.

What it means: Both Ericsson and Nokia are being battered by a worldwide market for telecom gear that faces significant headwinds on multiple levels. A difficult worldwide economy has made it difficult for carriers in emerging markets to continue to finance 4G build-outs, while operators in North America, Western Europe and even China have largely completed their LTE deployments and have tightened their belts in advance of 5G, which is sure to require significant investments. And while a flurry of activity is occurring to test next-generation services, large-scale deployments aren’t likely to launch for another two to three years.

Meanwhile, two Chinese vendors have emerged as major players in the worldwide telecom gear segment. Huawei continues to gain ground in major markets around the globe – with the notable exception of the U.S., of course – and ZTE is making progress as well, and may have won the Hutchison and VimpelCom deal that Ericsson lost in Italy.

Indeed, IHS Market recently said 2016 looks to be the first year of decline of 2G/3G/4G macrocell deployments, and Huawei dethroned Ericsson to become the top player in the space in the third quarter.

Both Ericsson and Nokia have begun to respond to the challenging market by looking to sell their wares to companies outside the traditional telco market, Ovum’s Daryl Schoolar recently wrote. The companies are looking at potential customers including public-sector agencies, businesses with largescale technology needs, and “web-scale and alternative service providers” to offset waning telecom sales, according to Schoolar.

The long-term viability for both vendors may lie less in shifting their customer focus, though, than in evolving their gear strategies. IHS said in its recent report that “the shift from hardware to software in the global mobile infrastructure market is well underway,” with worldwide software revenue growing 17 percent in 2015 year over year.

“The transition to software is happening, and software will sustain the entire mobile equipment market until 5G kicks in, creating an inflection point and bringing some much-needed growth – though moderate at best,” IHS said.