- Will Trump chicken out again on tariffs?
- Analysts think that this time may be different
- If the tariffs go ahead, it could tamp down numbers from EU vendors like Ericsson and Nokia
Ahead of Nokia’s second quarter results on Thursday, Fierce Network asked industry analysts if they thought that the Trump tariff threats against the European Union (EU), due to drop on August 1, would affect future financial results from Nordic telco vendors Ericsson and Nokia.
Trump always chickens out (TACO)
The first point to be addressed here is the possibility that TACO happens again. Remember Trump has repeatedly chickened out in the face of the Wall Street fears about tariffs since the he announced his tariff policy on April 2 this year.
AvidThink Principal Analyst Roy Chua thinks that this time may be different. “Ironically, given the relative stability of the markets so far, the administration may feel emboldened to make an example of some countries by enforcing high tariffs on select goods and services,” he told Fierce in an email.
“The EU is definitely in the crosshairs at this point, and it will impact all European companies, including Ericsson and Nokia,” Chua noted
“If Trump goes through with his latest EU tariff threat both Ericsson and Nokia could expect lower profit margins,” said Daryl Schoolar, analyst at Recon Analytics in an email to Fierce.
“Ericsson in its latest quarterly earnings already said tariffs have had a negative impact on its profit margins,” Schoolar noted.
The numbers game
Ericsson’s CFO Lars Sandstrom said on the Ericsson Q2 call last week that the vendor had seen a 1% impact from the tariff announcements so far or "a little lower."
This will change if the planned 30% tariff on the EU goes through — both Ericsson’s and Nokia’s home markets of Sweden and Finland, respectively, are members of 27 state European trade organization. “Both vendors can mitigate the impact of tariffs by moving production to other countries, but that is not easy or immediate,” Schoolar noted. “Both vendors have already moved some manufacturing to the U.S. which will help them as well," he added.
“Retaining that optionality is the right play given the uncertainty that surrounds us today. We've heard from leadership at both these companies that they have been going through strategy and scenario planning and likely have plans for action should the tariffs be higher than their expected projections,” Chua said.
Chua noted that any supply chain moves take time, while the tariffs will be put in place almost immediately. “That will cause a temporary dislocation and impact prices and availability of networking products,” Chua added.
Schoolar said that if Trump doesn’t chicken out, he may well change how his tariff plans are implemented again. “The challenge for Ericsson and Nokia is that Trump keeps changing his tariff plans so any move they make today to offset those tariffs could be for nothing tomorrow,” the analyst said.
“A longtail impact of tariffs could be a reduction in R&D investments by both vendors if profit margins significantly decrease. Any reduction in R&D could have lasting negative impact on those companies as we enter the 6G era,” Schoolar concluded.