Ericsson Posts 2nd-Quarter Loss
On Lower Margins in Systems Unit
Dow Jones Newswires
STOCKHOLM -- Telefon LM AB Ericsson Friday posted a second-quarter pretax loss on lower margins in its network systems unit and warned market conditions remained too uncertain for it to offer a detailed forecast for its performance in the third quarter and the full year.
Ericsson's results, as expected, are appalling. The market for mobile kit is poor. And there is very little visibility for the future. But at least things are no worse than expected. And Ericsson is gradually getting a grip on costs and inventory.
The Swedish telecom company reported a pretax loss of 5.3 billion Swedish kronor ($498.8 million or 572.3 million euros) before one-off items for the quarter to June 30.
The second-quarter loss, which excluded a 15 billion kronor charge for the restructuring program Ericsson announced at the end of the first quarter, compares with a pretax profit of 6.7 billion kronor in the second quarter of 2000. The 2000 figure also excludes one-off items.
Ericsson said sales for the quarter were 62.8 billion kronor, down about 3% from sales of 65 billion kronor in the same period a year earlier.
For the quarter, the telecommunications giant reported a net loss of 14.2 billion kronor, compared with a net profit of 10.2 billion kronor in the year-earlier quarter.
Ericsson said sales in its systems unit, which accounted for roughly 80% of its revenue, up about 9% from 2000, to 50.7 billion kronor for the second quarter. But the company said the unit's operating margin narrowed to 1%, which was a smaller margin than analysts expected.
Ericsson said it expects flat to moderate growth in 2001 in the market for mobile systems, as operators defer network expansion projects. Ericsson had previously estimated that the market would grow 5% to 15% for the full year.
Ericsson said it expects its own systems business to grow at least in step with the overall market for the full year. But it said difficult market conditions, which it expects to last through the end of the year, may delay its reaching its target of a 10% operating margin, with positive cash flow.
The company said it saw no signs yet of an improvement in the market, and said it is prepared to make additional cost-cutting steps if market conditions deteriorate further.
It said the phone unit's losses narrowed in the quarter, while it believes its market share grew slightly. Ericsson said the unit's operating loss was 4.6 billion kronor on sales of 8.1 billion kronor. The year-ago operating loss was 2.1 billion kronor.
It said its handset joint venture with Sony Corp., scheduled to be launched Oct. 1, is still on track to be profitable from the start.
Ericsson cut its forecast for global handset sales to a range of 400 million to 440 million. Its previous estimate was for sales of 430 million to 480 million. It estimated that 370 million to 410 million handsets will be shipped by manufacturers this year.
Ericsson said its restructuring plan, which aims to cut 20 billion kronor in annual operating expenses by next year, remains on track. It said it cut 1,300 employees in the quarter and 5,800 consultants. Another 2,000 employees will begin leaving in August, it said. Ericsson expects savings of 5.5 billion kronor from the program during 2001.
It said cash flow improved to 4.3 billion kronor in the quarter, compared with a deficit of 17.7 billion kronor in the first quarter. Its second-quarter cash flow in 2000 was 7.2 billion kronor. |
