Ericsson relieves tech investors

Ericsson offers a small ray of hope

Mobile phone giant Ericsson has lifted some of the gloom surrounding the telecoms sector, despite reporting huge losses and a slump in handset sales.

We are very encouraged by our progress made during the quarter considering the very challenging market

Kurt Hellström
President of Ericsson

The company has unveiled pre-tax losses of 20bn Swedish kronor ($1.88bn) for the April-to-June quarter, compared with a 6.7bn kronor profit during the same quarter last year.

The firm also reported a 39% fall in revenue from its mobile phone division and cut forecasts for sales over 2001 to 440-480 million handsets, from an earlier forecast of 430-480 million.

And, Ericsson said it saw "no signs of improvement" in the network market.

'Good report'

But Ericsson's profits statement was nonetheless welcomed by analysts, who had been expecting worse and were reeling from a second-quarter loss of $19.4bn by telecoms equipment maker Nortel Networks on Thursday.

Kurt Hellström: "Encouraged by progress"

"The margins were good, the cashflow quite simply impressive and the loss on telephones was smaller than expected - totally it was a good report," said Lars Soderfjall of Handelsbanken.

Jussi Hyoty at FIM Securities added: "The outlook on sales expectations is comforting as I had feared even worse."

Ericsson shares, which have fallen by three-quarters since the height of the tech stock boom in March last year, rose to 52.5 kronor in early trade in Stockholm on Friday.

By lunchtime, the shares had given up the gains to stand 2 kronor lower at 49.40 kronor.

Orders postponed

Company president Kurt Hellström said: "We are very encouraged by our progress made during the quarter considering the very challenging market."

But he warned of a persistent weakness in Ericsson's markets, with customers delaying expenditure on telecoms equipment and postponing delivery dates.

"We cannot predict how long this situation will prevail as we have yet to see signs of improvement."

The firm predicted the mobile systems market, which it had earlier thought would grow by 5-15% this year, would remain flat in 2001.

This is despite a 25-35% increase in the number of mobile phone subscribers.

About 920-950 million people will use a mobile phone by the end of the year, Ericsson forecast.

Job cuts

The company also reported progress in its drive to save 20bn kronor in costs through cutting 12,000 jobs and closing factories worldwide.

The firm has already implemented 1,300 job cuts, with 5,800 consultants also axed.

A further 2,000 employees have been handed their notice, and will start leaving in August.

"These are tough but necessary actions to restore profitability," Mr Hellström said.

He also predicted that interest in mobile internet technologies, which have so far disappointed observers, will eventually feed through into market growth.

"Regardless of how the market develops in the short term, it is only a matter of time before additional network capacity is required to support the continuing subscriber growth and increasing voice traffic."