TAKING THE PULSE: European network equipment vendors and mobile phone manufacturers are not expected to post any significant improvement in third quarter earnings compared to the previous quarter as market conditions remain harsh and handset makers in particular face stiffening competition in the run up to the crucial end-year trading period.

Chip makers including Samsung Electronics Co Ltd (005930.SE) and Texas Instruments Inc.(TXN) have recently given positive forecasts for third-quarter sales and earnings, raising some hopes for a resurgence in a mobile phone market still set to contract significantly overall this year.

Still, even as handset demand begins to improve the market is getting increasingly crowded with smartphones, and analysts will closely eye market share developments, particularly at the high-end.

Finland's Nokia Corp. (NOK), the world's largest handset maker, in July said it expects its market share to remain roughly flat against previous expectations for growth, and downgraded its margin guidance.

Rival Sony Ericsson, the joint venture between Japan's Sony Corp. (SNE) and Sweden's Ericsson (ERIC), said its market share fell in the second quarter from the first, and guided for a global handset market contraction of at least 10% in 2009 from 2008.

There are some concerns for intensifying price pressure in the telecom equipment market, and market-leader Ericsson will suffer from an appreciation of the Swedish krona which has strengthened around 12% against the U.S. dollar over the past three months.

At the time of the company's second quarter report, Ericsson Chief Executive Carl-Henric Svanberg warned that the mobile infrastructure market had begun to feel some impact from the economic downturn. Meanwhile, rival Nokia Siemens Networks forecast that infrastructure markets would shrink 10% in 2009 from 2008.

Ericsson is expected to post stronger third-quarter numbers than Nokia Siemens Networks, which has struggled in previous quarters, but there are some concerns that the higher expectations on the Swedish company could make for a disappointing report. Paris-based rival Alcatel-Lucent isn't expected to report any major earnings improvement in the third quarter as carrier spending remains weak in its main markets

COMPANIES TO WATCH:

 
    ---- Nokia ---- (Oct. 15)

MARKET EXPECTATIONS: Sales and earnings are expected to fall from a year earlier, but to improve from the previous quarter. Analysts expect good sales of cheaper phones, helped by Nokia's economies of scale, but the company risks losing further high-end market share to competitors such as Samsung and Apple Inc. (AAPL).

Nokia Siemens Networks, the joint venture with Siemens AG, has struggled in previous quarters with falling market share and harsh business conditions, and downgraded its outlook for both market share and market development. The third-quarter result is also expected to be weak, and little changed from the second quarter.

MAIN FOCUS: The average selling price of Nokia's phones is expected to fall because of the relative success of its low-end devices. The market will therefore keep a close eye on the company's margins, which could come under pressure.

Nokia has recently ramped up its focus on services and announced new products including a mini-laptop, but these are not expected to give any substantial short-term earnings boost.

Nokia Siemens Networks will have to boost sales in order to improve its profits so there are some expectations that it might cut prices.

 
    ---- Sony Ericsson ---- (Oct. 16)

MARKET EXPECTATIONS: The handset maker, a joint venture between Ericsson and Japan's Sony Corp. (SNE), has seen earnings and market share fall so far in 2009 and the negative trend is not expected to improve much in the third quarter.

The economic downturn has been particularly damaging to the middle tier of the mobile phone market, where Sony Ericsson has a strong presence. The company's small production volumes make its situation particularly difficult.

Still, the Sony Ericsson's earnings may improve slightly from the second quarter of the year, helped by cost-cutting measures and a stronger overall market.

MAIN FOCUS: Sony Ericsson is launching a set of new high-end phones during the fourth quarter and there are some hopes that these will help reverse its negative market share development. Comments on the financial outlook will be closely watched.

 
    ---- Telefon AB L.M. Ericsson --- (Oct. 22)

MARKET EXPECTATIONS: Ericsson's business has been relatively stable in the economic downturn, and analysts expect its earnings to improve slightly from the previous quarter.

However, Ericsson has so far in 2009 benefitted from a weak Swedish krona against the dollar and euro, and since the Swedish currency has appreciated as of late there are concerns that this will hurt the company's sales.

MAIN FOCUS: Market watchers will keep a close eye on Ericsson's margins. Like in previous quarters, the company's service business is expected to report a strong performance, and the scope for margin improvement may be limited because margins tend initially to be lower on services than on equipment sales.

Although sales volumes are seen quite stable, there are concerns that some competitors may push down prices in the sector, hitting revenue.

 
    ---- Alcatel-Lucent (ALU) ---- (Oct. 30)

MARKET EXPECTATIONS: Analysts don't expect a major improvement in Alcatel-Lucent's third-quarter results as the carrier market remains difficult, in particular in Europe, as telecommunications operators continue to be selective about investments.

However, in line with the predictions of Chief Executive Ben Verwaayen, profitability is expected to improve over coming quarters. Alcatel-Lucent is expected to reiterate that its expects to break even for the full year at an adjusted operating level, even though some analysts remain skeptical that the group will achieve this goal.

MAIN FOCUS: The market is keen to hear comments on how carrier spending is progressing, in particular in the U.S., to gauge when the market may start to recover. Analysts will keep a close eye on Alcatel's U.S. wireless revenue as the big U.S. telecom companies are expected to increase capital expenditure over the second half of the year. Alcatel-Lucent makes about a third of its sales in the U.S.

Debt, which has long been a worry for investors, is less of a concern as most analysts believe the group's balance sheet is improving and the liquidity risk off the table. Alcatel-Lucent has its costs under control and will be able to meet its cost-cutting targets, analysts say.

-By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099; gustav.sandstrom@dowjones.com and Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54; ruth.bender@dowjones.com