UPDATE 3-Ericsson Q2 loss in line, outlook uncertain
(Recasts with fund manager quotes, details from teleconference)
By Jan Strupczewski
STOCKHOLM, July 20 (Reuters) - Swedish telecoms equipment
maker Ericsson reported a second quarter loss in line with
expectations on Friday but said market uncertainties had
worsened, making a forecast for the full year impossible.
The world's biggest maker of mobile network systems and
fourth biggest handset maker managed to increase sales of
systems -- a key division, which generates most of its earnings
-- and said it had returned to positive cash-flow.
It also reported a smaller than expected loss at its handset
division and reiterated its planned handset joint venture with
Japan's Sony Corp <6758.T> was on track to start on October 1
and be profitable from the start.
Investors initially welcomed the report, taking the share
price up two percent to 52 Swedish crowns, before it fell back
to trade at 49 crowns by 1055 GMT.
The share has fallen more than 78 percent since its peak in
March 2000, and the company has shed half of its market value so
far this year.
"The margins were good, the cashflow quite simply impressive
and the loss on telephones was smaller than expected -- in all
it was a good report," said Handelsbanken analyst Lars
Soderfjall.
However, there was growing investor concern at the lack of
guidance on when business is expected to pick up.
"Now uncertainty has increased even further, particularly in
the U.S. and Western Europe regarding the duration and severity
of the current unfavourable market environment," Ericsson said.
"As a consequence, we refrain from specific guidance for the
third quarter and the full year," it said in a statement.
NO Q3 GUIDANCE CAPS SHARE PRICE
Investors were disappointed by the lack of near-term
guidance. "Uncertainty about the future must be reflected in the
price and that is why the share is not rising," said a Swedish
fund manager, who asked not to be named.
Some investors said Ericsson's caution about the outlook
could be tactics to keep the powerful Swedish trade unions in
check at a time when the company is laying off up to 22,000
people in a global efficiency programme.
"They are too much into their restructuring and cutting down
staff and they don't want to be too positive about what can
happen because of the trade unions," said Jorgen Vrenning, fund
manager at Catella Fonder in Stockholm.
Ericsson showed a 5.3 billion Swedish crown ($497.7 million)
adjusted loss for the April-June period against a 4.9 billion
loss in the first quarter, in line with market consensus.
The result was weighed on by losses in its mobile phone
handset division and falling margins in the still profitable
mobile systems unit, as telephone operators worldwide put new
investment on hold amid a global economic slowdown.
"Many of our customers have delayed spending on network
expansion and in some cases postponed contracted deliveries. We
cannot predict how long this situation will prevail as we have
yet to see signs of improvement," Chief Executive Kurt Hellstrom
said in a statement.
Ericsson's order book fell to 61.2 billion crowns from 75.5
billion in the first quarter and margins in its mobile systems
division dropped to one from four percent.
COST CUTTING ON TRACK
Ericsson said its cost-cutting measures were on track and it
hoped to boost systems margins by the end of the year.
"With the efficiency programme, we expect to see the
benefits from that during the second half and in particular in
the final quarter of the year and this should allow us to
improve margins again," Hellstrom told Reuters.
But the margins would benefit from the full impact of the
efficiency programme only in 2002 when the company's annual
savings are to reach 38 billion crowns against 5.5 billion
expected this year.
Hellstrom said he believed Ericsson had snatched market
share in current generation GSM standard wireless systems from
arch-rival Nokia in the quarter.
He said he did not expect third-generation (3G) mobile
systems, which offer multimedia services and always-on Internet
access, to bring in significant revenue until 2003, with trial
networks launched this year and many commercial launches in
2002.
The company's exposure to customer financing increased in
the second quarter to 23 billion crowns from 21 billion in the
first quarter, partly due to the weakness of the crown.
MARKET UNCERTAINTY DEEPENS
Ericsson's reluctance to give a specific forecast struck an
ominous chord with comments made late on Thursday by Nortel
Networks Corp , the world's biggest supplier of
telecoms equipment.
Nortel lived up to an earlier warning to report a second
quarter loss of $19.4 billion as revenues declined and said
market uncertainty persisted.
"Visibility still remains clouded so there is no forecast at
this time... we are pleased with our cash position and liquidity
of the corporation," said Chief Executive John Roth.
In addition, the world's biggest mobile phone handset maker
Nokia said on Thursday its third quarter would be
worse and could not give precise guidance on the fourth quarter.
SONY JV ON TRACK
CEO Hellstrom explained the joint venture with Sony would be
profitable because Ericsson would keep the two main loss-making
parts of the handset business and transfer only the profitable
areas of the division, which include sales and marketing.
However, it cut its forecast for global handset sales this
year to 400-440 million units from the previous estimate of
430-480 million.
Ericsson also said its cost-cutting programme, envisaging
job cuts of up to 22,000 or one fifth of the workforce, was on
track with half the planned sackings already carried out, but
said it was ready to cut costs further if need be.
Ericsson also reported a sharp improvement in its cash flow
in the second quarter to 4.3 billion crowns from a 17.7 billion
crown outflow in the first, reducing the risk it would have to
ask for more money from the financial markets.
(With additional reporting by Carin Sjolin in Stockholm and
Paul de Bendern in Helsinki)
($1=10.648 Swedish Crown)
REUTERS
Rtr 07:40 07-20-01 |
