Will emerging markets be friend or foe for telecoms?Two of telecoms' biggest names have released their financial results – but are predicting two different futures for their industry.
Device manufacturer Nokia and telecoms equipment both posted healthy year-on-year sales growth for the second quarter – 25 per cent and 18 per cent respectively – the pair's CEOs were taking a very different position on how developing markets are affecting their bottom line.
For Nokia, the need to grab market share in future key mobile markets in Asian and African countries is forcing the handset market to drop its margins in order to secure handset sales.
The average selling price for Nokia handsets dropped in the second quarter by €5 to €105 which the company attributed to the pressure on cutting handset costs as well as growing its share in emerging markets, where the phone market is largely entry level – and therefore lower margin – phones.
CEO Jorma Ollilia said the situation is not likely to be resolved quickly.
While the company is shifting an increasing number of handsets, "as this growth came primarily from emerging markets where low-end products predominate and pricing pressures are currently intense, industry average selling prices continued to edge downwards. This was certainly the case for Nokia… which in turn impacted our profitability. We currently believe these trends will continue for both the industry and Nokia for the remainder of the year", Olllila said in a statement.
In contrast, Ericsson is waving the flag for the emerging markets and all the coffer-lining they have contributed to.
Carl-Henric Svanberg, Ericsson CEO, said that the growing interest in providing telecoms infrastructure has benefited the company. Ericsson reported eight per cent year-on-year sales growth in Asia Pacific, with China and Africa leading the way, and growth of 27 per cent in central Europe, the Middle East and Africa and 28 per cent in Latin America.
Ericsson is expecting "moderate growth" in the worldwide mobile systems market this year.