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Ericsson posts another loss
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October 26, 2001: 3:15 p.m. ET
Chairman to step down as Swedish company posts third-quarter loss.
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LONDON (CNN) - Shares of Swedish Ericsson telecommunications equipment maker LM Ericsson moved higher on Nasdaq Friday even after the company logged disappointing quarterly financial results and provided a downbeat forecast for the current quarter and beyond.
The company, which is the leading supplier of the equipment used to build wireless telecom networks and the No. 3 maker of mobile phones, posted yet another quarterly loss. It also ousted its chairman, Lars Ramqvist, who will be replaced in March by Michael Treschow, the chief executive of the world's biggest appliances maker, Electrolux.
Before the U.S. markets opened, Ericsson showed a much larger-than-expected pre-tax loss of 5.8 billion Swedish crowns (about $550 million). That compares with a profit of 4.4 billion crowns ($410 million) in the same period a year ago.
Analysts generally had expected the company to lose 4.5 billion crowns. The company's sales of 54.6 billion crowns fell short of market consensus of 59.15 billion.
Ericsson, like its rivals, has been hit by the U.S.-led economic slowdown, with operators postponing new orders and consumers reluctant to buy new phones. Ericsson was struggling to become profitable even as it launched a major restructuring program earlier this year.
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We believe Ericsson is having a hard time competing in networks against competition. That appears to have led to a major shake up at the top.
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Tim Ghriskey
Senior Partner
Ghriskey Capital Partners |
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The company has shed 22,000 employees and spun off its handset division into a joint venture with Japan's consumer electronics firm Sony.
"The slowdown for telecommunications systems accelerated in the third quarter," said Ericsson Chief Executive Kurt Hellstrom. "We now anticipate that the difficult market conditions will persist well into next year."
Ericsson also had a more pessimistic outlook for the networks market for 2002 than many of it competitors like Nokia or Nortel Networks (NT: up $0.30 to $6.29, Research, Estimates).
"For 2002 we expect sales at least in line with the market development of flat to down 10 percent," the company said in a statement.
But the company's stock was lifted later in the day after Ericsson executives hosted a teleconference. In it, they said the company's cash flow was positive in the July-September period, while the company defied expectations with a positive operating margin for its mobile systems business.
Investors said they were relieved because the positive cash flow meant a new share issue was not imminent and were glad the networks unit was still profitable, even if much of its one-percent margin could be attributed to currency effects.
Ericsson executives also said Friday they expect the company to keep a positive cash flow in the fourth quarter and in the whole of 2001, which calmed investor concern over the need for a new share issue.
Chief Financial Officer Sten Fornell made clear the company had no plans to tap shareholders funds, unlike competitors Motorola, Nortel Networks or Lucent Technologies.
"We are not planning any stock issue," he said.
At the same time, they forecast falling network sales in the fourth quarter, and flat or falling sales next year against an earlier forecast of flat-to-modest growth, which analysts said amounted to a sales warning.
Even so, shares of Ericsson (ERICY: up $0.19 to $4.54, Research, Estimates) were up in Nasdaq trading Friday afternoon.
U.S. Bancorp Piper Jaffray analyst Sam May told CNNfn that part of the reason for the rise could be the company's decision to replace Ramqvist, often criticized for Ericsson's current misfortunes, as chairman. (206K WAV) or (206K AIFF)
Finland's Nokia, the world's biggest and still profitable producer of mobile phones, forecast last week a tough market for networks until the second half of 2002 and said its systems sales would drop 20 percent in the fourth quarter as hard-hit operators delayed spending on new networks.
"While it's certainly an industry issue, we believe Ericsson is having a hard time competing in networks against competition. That appears to have led to a major shake up at the top," said Tim Ghriskey, senior partner at Connecticut-based Ghriskey Capital Partners LLC.
Ericsson said it is preparing for: a market downturn lasting well into next year; significant net subscriber additions with continued increasing usage per subscriber; a gradual build-up of GPRS traffic over the next 12 to 18 months; and increased deployment of 3G systems during 2002.
GPRS, or General Packet Radio Services, is an intermediate technology between today's mobile phone services and third-generation networks that promise to offer email, Internet and video services to mobile phones. GPRS offers "always on" internet access which means users do not need to dial up every time they want to connect to the net.
Ericsson's handset division, which has been losing money since the second quarter of 2000, now expects global handset sales this year at around 400 million units, at the lower end of a 400 million to 440 million unit forecast made in July.
Nokia has forecast worldwide mobile phone sales for the entire industry in 2001 will be about 390 million units, down from a previous forecast of 405 million.
-- Reuters contributed to this report 
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