2002: a wake up call to equipment manufacturers

7 Feb 2003

Last year was something of an annus horribilis for equipment manufacturers. Analysis from CIT of the newly released results of eight major vendors, as shown in the chart above, indicates that the slide that began in 2001 is continuing apace. The main cause of this has been the continued slashing of capital expenditure on telecoms equipment by operators who are desperate to cut costs in the face of the industry downturn. The result has been that operators have seen revenues drop dramatically. Overall, the combined income of the eight featured companies fell 23% in the 12 months to December 2002. Nokia and Qualcomm appear to have coped the best, with the former losing only 3.4% from its top line and the latter actually managing an increase of 8.7%. Others have not been so lucky, registering significant drops in their revenues. Alcatel’s income fell by 35%, while Ericsson’s drop was 31% and Lucent’s 42%. The 2002 revenue decreases have generally come on the back of substantial falls in 2001. Nortel for instance has been one of the worst performers revenue-wise over the last couple of years. Its revenue dropped 40% in 2002, on the back of a 37% fall the previous year. From a high point in 2000 of USD27.9 billion, Nortel’s annual revenue has plunged to just USD10.6 billion in 2002. Employee numbers have generally followed this decline. At the end of 2000 Nortel employed 94,500 people, a figure which the company now expects to be reduced to 36,000 by March 2003. Most operators have followed Nortel’s example and made swingeing cuts to their workforces.

source: CIT’s Global Telecoms 200

The radical measures instituted by vendors to maximise profitability seem to have largely been successful. Over the course of the last financial year, each of the eight vendors featured here managed to either increase their profits or reduce their losses. Of those companies in the black, Nokia was the most successful, with profits of USD3.7 billion, closely followed by Motorola with USD2.3 billion. The other profitable operator, Qualcomm, registered a net profit of USD794 million. Of those companies that continued to make a loss, Nortel showed the greatest turn-around in fortunes. In 2001 its net loss was USD27.3 billion, but in 2002 the figure was cut by 87% to USD3.6 billion. Much of this can be ascribed to the disposal and closure of unprofitable assets, which accounted for part of the company’s 40% drop in revenues. In the final quarter of 2002 Nortel’s loss was just USD248 million, indicating that the company may well have turned the corner and be looking at returning to profitability in 2003. Motorola and Lucent also managed to reduce their losses by 37% and 27% respectively. Lucent still managed to make a massive loss of USD11.8 billion, however.

CIT's Global Telecoms 200