Fire dents Ericsson handset business
By Clare MacCarthy in Stockholm
Published: July 21 2000 18:51GMT | Last Updated: July 22 2000 02:17GMT
Ericsson, the world's third largest maker of mobile phones, revealed on Friday that a fire at one of its component factories in the US had caused big losses in its handset business.
The revelation caused Ericsson shares to fall by more than 11 per cent. Some analysts accused the company of failing to disclose crucial information. "It was crazy not to tell us ... This made a huge impact," said one.
Ericsson shares fell to SKr182.50 on news that its handsets unit had swung into a SKr2.3bn operating loss in the second quarter compared with a first-quarter SKr457m profit.
The fire, at a factory in New Mexico owned by Philips of the Netherlands, left the Swedish company with large stocks of unfinished mobile phones awaiting a key component. The factory supplied Ericsson with advanced silicon semiconductors.
Ericsson has struggled to keep pace with Nokia, the Finnish company, and Motorola of the US. The mobile phone unit accounts for one-fifth of its entire business.
The Swedish company rebuffed accusations that it had been unwise to source a crucial component for its mobile phones from a single source.
"Depending on one supplier is common in this business and this supplier [Philips] has a good record historically," Kurt Hellstrom, president, said.
The company, when asked why it had not informed markets earlier about the fire, said: "We guide the markets about the whole company, not parts of the company."
Mr Hellstrom said that the silicon semiconductor in question represented cutting-edge techonology which no other supplier could provide.
Ericsson said that, overall, the impact of component shortages would reduce earnings by SKr1.5bn in the first half, rising to SKr3.5bn in the second half of the year.
It also quashed speculation that it might sell its mobile phone manufacturing business. "We do not plan to sell the mobile phones division," Mr Hellstrom said. "It is a core business and we would not be so successful overall without it."
The bad news on mobile phones overshadowed an otherwise buoyant earnings report that showed that the Swedish telecoms equipment maker has reinforced its leading position worldwide in infrastructure for mobile phones.
Ericsson's overall pretax profit for the first six months rose by 337 per cent to SKr18.6bn, driven by rapid growth in the mobile infrastructure segment while total global sales rose 34 per cent to SKr124bn. "There's a lot of good news, 80 per cent of Ericsson is doing extremely well," Mr Hellstroom said.
According to Ericsson's predictions, the number of mobile users worldwide will surpass fixed line users by 2002, while mobile internet will overtake fixed line internet in three years. "This development is a great business opportunity for Ericsson," Mr Hellstrom said.
"Ericsson has become two companies in one. An extremely profitable infrastructure side and a sinking ship - mobile phones," said Mats Nystrom, a telecom analyst at Enskilda Securities.
news.ft.com. |
