Ericsson and Nokia Warnings Trigger Broad Selling in Telco and Networking Stocks

Ericsson

(ERIC) wasn’t quite as gloomy in its comments, but guidance disappointed the Street. CEO Borje Ekholm said the company expects “the market will see a gradual recovery in late 2023 and improve in 2024.”

The twin reports have triggered widespread selling of networking equipment stocks, related chip providers, and others that rely heavily on business from

AT&T

(T),

Verizon

(VZ), and

T-Mobile

(TMUS), which dominate the U.S. telecommunications market.

“The telecom equipment market is facing stronger headwinds than we anticipated, in particular in the key U.S. market, where inventory digestion and weaker deployments are leading to greater pressure on near-term revenue,” Citi analyst Andrew Gardiner wrote in a research note. “With both Ericsson and Nokia lowering their outlooks this morning, any fundamental recovery looks delayed into 2024.”

Wells Fargo analyst Gary Mobley pointed out in a research note that Nokia and Ericsson are customers of chip makers Analog Devices (ADI) and

Marvell Technology

(MRVL), and that wireless communications are about 8% of ADI’s total revenue, while wireless base stations account for about 10% of Marvell’s revenue. 

Evercore ISI analyst Amit Daryanani asserts in a research note the problems at Nokia and Ericsson reflect weaker demand for RAN, or radio address network, equipment. He sees some exposure to that market for

CommScope

(COMM), but sees little exposure for network equipment providers

Cisco Systems

(CSCO) and

Juniper Networks

(JNPR). He asserts that the commentary from Ericsson and Nokia offer a modest positive for

Ciena

(CIEN), which has no RAN exposure, but benefits from network growth in India, which Ericsson called out as an area of strength.

Meanwhile, UBS analyst Joshua Spector on Friday reduced his rating on specialty glassmaker Corning (GLW) to Neutral from Buy. The analyst writes it will be a year or two before it can generate improved growth in the company’s optical fiber business, which serves the telecom sector. He trimmed estimates on Corning to reflect a slower recovery in customer demand from both the flat-panel display and smartphone businesses.

Ericsson shares were off 10.5% on the news, while Nokia was down 9.3%.

Among other communications equipment players, CommScope was off 10.5%, while Ciena was 6% lower. The selling has spread into networking infrastructure players, including Cisco, off 2%; Juniper, down 5%;

Arista Networks

(ANET), down 2%; and

Extreme Networks

(EXTR), off 3%.

The slide was also hitting niche telecom infrastructure providers such as

Lumentum

(LITE), down 7%;

Infinera

(INFN), down 4%, and

Viavi Solutions

(VIAV), off 3%.

Among the comms-related chip companies, Analog Devices and Marvell were both off 2%. Corning shares were down 6%.

Telcom shares were also falling, with

AT&T

down 5% and both

Verizon

and

T-Mobile

1% lower.

Dish Network

(DISH) was down 5%, while cable providers

Comcast

(CMCSA) and

Charter Communications

(CHTR) were both 1% lower.

Write to Eric J. Savitz at [email protected]