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Ericsson beats forecasts
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October 22, 1999: 8:42 a.m. ET
Shares of No. 3 cellphone maker soar amid bullish outlook, 3Q results
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LONDON (CNNfn) - Sweden's Ericsson, the world's third-largest mobile phone maker, beat expectations with a 19 percent drop in third-quarter pretax earnings Friday to 3.6 billion Swedish crowns ($441 million).
A bullish outlook further pleased investors, sending the shares almost 14 percent higher in Stockholm.
Ericsson said its new mobile phone products, seen as crucial to the company's recovery, had been well received and would boost earnings for the fourth quarter and beyond.
Sales in the three months jumped 14 percent to 49.3 billion Swedish crowns. Operating profits fell 20 percent to 3.7 billion crowns.
Mobile Systems, the infrastructure side of the business that now accounts for 69 percent of revenue, was particularly strong. In the nine months to Sept. 30, sales grew 23 percent, with a particularly strong improvement in the operating margin in the third quarter to 16 percent from 13 percent.
Ericsson upgraded its expectations for sales growth to between 12 and 15 percent, versus expectations of 10 percent previously. The company forecast pretax earnings in the range of 15 billion to 16 billion crowns for the full year.
Looking further ahead, the Swedish firm said it "anticipates a strong improvement in performance for year 2000. We are confident that the positive trend that has started to emerge during the third quarter will continue into next year."
The company said it was possible that sales growth could reach 20 percent next year.
Reflecting the more confident tone, temporary chief executive Lars Ramqvist predicted the company would knock Motorola off second spot "in a few years." He said Ericsson aimed to capture 15 percent of the global mobile phone market by the end of next year, up from an estimated 12-13 percent.
Ericsson's shares rocketed and stood 13.8 percent higher at 306 crowns.
Analysts welcomed the numbers and said the cost-cutting program was having a greater-than-anticipated effect. "[Ericcson's] results were better than expected. They have an upbeat view on next year," Donaldson, Lufkin & Jenrette's technology analyst Douglas Smith told Reuters. "Cost-cutting seems to have helped their profitability more than expected," he added.
The Stockholm-listed mobile phone maker said its restructuring program is now expected to yield annual savings of 3.7 billion crowns from 2001.
Restructuring costs so far this year have reached 1.5 billion crowns, with 60 percent of those coming in the third quarter. The company said it now planned to shed 16,000 staff, up from 15,000, by the end of next year.
Ericsson was forced to take drastic action following two profit warnings in the past year and an outdated range of mobile phones. The last chief executive, Sven-Christer Nilsson, was pushed out in July. Ramqvist said Friday he expected to step down next January to make way for a permanent replacement.
Sales for the first nine months of 1999 jumped 14 percent to 141.6 billion Swedish crowns, while pretax earnings fell 35 percent to 7.9 billion Swedish crowns. 
-- from staff and wire reports
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