Ericsson shares rally
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July 23, 1999: 8:46 a.m. ET
Stock gains though Swedish phone firm posts unexpectedly steep profit slump
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LONDON (CNNfn) - Shares of the world's third-biggest mobile phone maker, Ericsson, soared more than 7 percent Friday despite a bigger-than-expected 38 percent drop in first-half net earnings to 3.19 billion crowns ($381.7 million).
Analysts called the gain a rebound, after many investors had taken negative positions in Ericsson following the abrupt departure of chief executive Sven-Christer Nilsson two weeks ago. Critics blamed Nilsson for failing to effectively implement the company's overhaul, launched in March.
"This is really the opposite of what we saw with Nokia," Per Lindberg, director of technology at Dresdner Kleinwort Benson in London, said Friday.
Finnish mobile-phone maker Nokia saw its shares drop sharply Thursday despite reporting a meteoric 61 percent increase in second-quarter profits.
"A lot (of people) bought Nokia shares in anticipation of a stronger-than-expected report," Lindberg said. "Likewise, many took negative positions in Ericsson in anticipation [of a weak report]."
Ericsson sales, which account for about 15 percent of Swedish exports, grew by a better-than-expected 12 percent in the first half.
But the company said the benefits of strong sales were offset by a sharp drop in operating profits in the Consumer Products division. Ericsson said the unit saw "breakeven profitability".
The company also blamed restructuring costs, negative cash flow and increased operating expenses throughout the company.
"As we have said before, 1999 is a year of investment and preparation for the next phase of Ericsson's development," the company said. "The first six months of 1999 was a difficult period
We are not, however, satisfied with the performance."
Building on these comments, CEO Lars Ramqvist told reporters in Stockholm Friday that "we are determined to have the company back on track by the end of this year."
For 2000 Ericsson anticipates "strong improvements" in profits.
Ericsson disclosed details of its restructuring program for the first time Friday, saying it will eliminate 15,000 jobs in the next two years, up from a previously announced 14,000Of the total, 8,800 will go this year.
Ericsson shares rose 7.2 percent to 252.5 Swedish crowns in Stockholm Friday.
--from staff and wire reports
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Ericsson
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