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Ericsson posts big loss
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July 20, 2001: 9:00 a.m. ET
Swedish telecoms giant deep in the red amid overhaul, cancelled orders
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LONDON (CNN) - Sweden's Ericsson, the world's biggest wireless network supplier, swung to a heavy second-quarter loss as handset sales plunged and it restructured.
Ericsson said its pretax losses before restructuring charges were 5.3 billion crowns ($500 million) in the quarter, in line with lowered expectations, compared with a profit of 6.7 billion crowns in the three months last year.
The company posted a net loss of 14.2 billion Swedish crowns, or 1.81 crowns a share, in the three months to June 30. That compares to a profit of 10.2 billion crowns, or 1.28 crowns a share, in the year-ago period.
"Weak market conditions for our industry persisted in the second quarter," said Chief Executive Kurt Hellstrom. "Many of our customers have delayed spending on network expansion and in some cases postponed contracted deliveries."
Restructuring charges amounted to 15 billion crowns as the company cut 10,000 jobs during the quarter and 5,800 consultant positions. Another 10,000 jobs will go in the second half, as previously announced.
The company said overall sales fell 3 percent to 62.8 billion crowns and orders slipped 5 percent to 61.2 billion crowns.
'Flat to moderate growth'
Sales of mobile systems rose 9 percent to 50.7 billion crowns, but mobile phone handset sales dragged the overall numbers down as they plunged 39 percent to 8.1 billion crowns.
Ericsson said it expects only "flat to moderate growth" in its key mobile systems market for the full year. It declined to give guidance on third-quarter or annual earnings.
"The numbers were in line with lowered expectations," Mark Davis Jones, managing director of telecom equipment at Salomon Smith Barney, told CNN.
"The real concern is the mix of numbers, they've done a little better with mobile handsets but the core telecom network business has collapsed with profit margins at 1 percent from 4 percent," he said.
The operating margin in its mobile systems division, which generates most of the company's revenues, fell to 1 percent in the second quarter. In the first quarter of the year the margin was 4 percent and in the second quarter of 2000 it was 21 percent.
"Our focus on cash flow has paid off and we will continue to prioritize cash flow to ensure further improvements," said Hellstrom.
Waiting for 3G windfall
Ericsson, Nokia and rivals such as Motorola (MOT: Research, Estimates) are suffering the effects of the economic slowdown in the U.S. and a reduction in orders from debt-laden phone companies.
Nokia said on Thursday network sales fell 2 percent to  1.9 billion. European telecom operators spent more than 100 billion on winning the right to offer 3G (third-generation) services, or high speed mobile phone networks that allow the Internet, video and voice services on cellphones.
The same companies are expected to spend a similar amount on rolling out those services, according to estimates from analysts. But many telecom companies have fallen heavily into debt and now plan to share networks.
"Until customers (telecom operators) accept the technology (3G networks) uncertainty will continue until 2003," Salomon's Davis Jones said.
Ericsson's stock was as high as 122.20 crowns in early January before sliding about 60 percent amid revenue warnings and restructuring.
In afternoon trading, Ericsson's share fell 1 percent to 50.50 after Vodafone (VOD), the world's biggest wireless operator, said its rollout of high-speed network could be delayed until 2003.
In April, Ericsson posted a first-quarter pretax loss of 4.9 billion crowns, excluding a gain of 5.5 billion crowns from the sale of its stake in Juniper Networks Inc. of the U.S.
Ericsson suffered huge losses at its mobile phone business. In a bid to stem losses and save 38 billion crowns annually from 2002, it agreed to farm out production of mobile phones and launched a handset joint venture with Japan's Sony. 
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