Ericsson Just Dropped a Huge Clue for These Upcoming Reports
Swedish telecom equipment giant Ericsson (NAS: ERIC) just reported third-quarter results. It wasn't pretty, and the bombshell sent shock waves across the sector.
Ericsson's net income plunged 41% year over year and failed to meet the expectations of European analysts. Cost-cutting efforts have reduced the company's operating expenses by 7% over the last year, but gross margins dropped from 35% to 30.4%, wiping out the benefits of that trend.
CEO Hans Vestberg said that macroeconomic pressures are holding back telecoms across the globe from investing in new networks, which is news to absolutely nobody.
But the breakdown of spending trends may come as a surprise: Vestberg explained that North American customers are in fact buying plenty of equipment right now -- the weak spots are found in places like "parts of Europe, China, Korea and Russia."
That's half the BRIC bloc putting the brakes on high-tech growth. This tidbit goes a long way toward explaining today's market action in the long-distance networking sector.
Ericsson plunged more than 5% on the report, which of course makes it the worst performer among the industry's major competitors. Alcatel-Lucent (NYS: ALU) shares fell 2.4%, since the French-American company makes most of its sales in the areas Ericsson just pointed out as troublemakers -- only 37% of Alcatel's revenue comes from the benign North American market.
But American specialists gained on the news. Ciena (NAS: CIEN) reports 60% of its revenue in the U.S. and Canada, and its shares jumped 2.4% today. Sonus Networks (NAS: SONS) is even more reliant on American sales, with a staggering 73% of its business happening here, and that stock soared a sector-leading 2.8%. There's a very geographical pattern developing here.
Ericsson's report is rightly seen as a weather vane for the industry. Most of its head-to-head rivals will report results in the coming couple of weeks, and investors feel like they got an early clue on these unreported results today.
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The article Ericsson Just Dropped a Huge Clue for These Upcoming Reports originally appeared on Fool.com.Fool contributor Anders Bylund owns shares of Sonus Networks, but he holds no other position in any company mentioned. Check out Anders' bio and holdings, or follow him on Twitter and Google+. The Motley Fool has a disclosure policy.
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