NOK Nokia Corp

By Stu Woo 

The two struggling Nordic companies that once dominated the telecommunications-equipment market are showing renewed signs of optimism, just as their two largest competitors -- both from China -- are hitting potentially serious hurdles.

Ericsson AB of Sweden and Finland's Nokia Corp. said in the past week that U.S. wireless carriers were planning to upgrade their networks sooner than expected, which would give a boost to both companies' long-declining equipment sales.

"5G momentum is building fast," Nokia Chief Executive Rajeev Suri said Thursday, referring to the next, superfast generation of network technology.

Mr. Suri said U.S. wireless carriers should start significant spending on 5G equipment in 2018's second half. Carriers originally weren't expected to spend heavily on 5G until 2019 or later.

Meanwhile, China's booming telecommunications-equipment makers, Huawei Technologies Co. and ZTE Corp., are facing growing pressure in the U.S.

Last week, the Commerce Department all but banned ZTE from buying components from U.S. suppliers, though much is still unclear about how sweeping enforcement will be.

The sanctions stemmed from U.S. allegations that ZTE broke the terms of a previous settlement, brokered after the company admitted to shipping U.S. telecoms equipment to Iran and North Korea, in breach of U.S. sanctions.

The Wall Street Journal reported on Wednesday that the Justice Department is investigating whether Huawei also violated U.S. sanctions related to Iran. After that report, the company scrapped plans for a EUR500 million bond sale.

The actions come amid a broader Washington campaign to curb Huawei and ZTE over national-security fears that their equipment could be used to spy or disable communications. Both companies have said they pose no threat.

Huawei in 2017 led the global telecom-equipment market with a 27% share, followed by Nokia's 17%, Ericsson's 13%, and ZTE's 10%, according to Dell'Oro Group, a research firm.

Customers in the U.S. are generally demanding faster internet, for streaming videos and other reasons, Nokia's Mr. Suri said Thursday. Wireless carriers want to keep up with rivals who will be advertising their 5G networks. Mr. Suri said manufacturers are also investing in 5G connections for factories and other industrial uses.

Partly because of the stepped-up pace, Nokia said Thursday it now expects industrywide declines in equipment sales to carriers to come in less than feared. Nokia said those sales should fall just 1% to 3% in 2018. In February, Nokia predicted a 2% to 4% drop.

Meanwhile, Ericsson shares have risen 20% since it reported last week that its losses narrowed sharply. Investors see a turnaround effort -- involving cutting jobs and divesting itself of businesses that aren't related to selling telecom equipment -- taking hold. Ericsson also sees 5G momentum rising in the U.S.

Chief Executive Borje Ekholm said carriers in North America are "investing heavily...in order to be early on 5G."

There is still a long way before either company climbs out of the deep holes that years of losses have left them in. They are both still losing money, just not as much of it.

Ericsson said its first-quarter loss was 837 million Swedish kronor ($98 million), compared with 10 billion kronor in the same period a year earlier. Sales fell 9% to 43.4 billion kronor.

On Thursday, Nokia reported a first-quarter loss of EUR191 million ($232 million), compared with EUR450 million a year earlier. Its first-quarter revenue was EUR4.9 billion, down 8%.

Huawei is the world's biggest telecoms-equipment maker and it is the No. 3 smartphone manufacturer behind Apple Inc. and Samsung Electronics Co. Last month, it said its net profit rose 28% to 47.5 billion yuan ($7.5 billion) for 2017 on the back of strong smartphone sales.

Write to Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

April 27, 2018 07:22 ET (11:22 GMT)

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