Ericsson posts loss, sees weak 2002
By Reuters
October 26, 2001, 1:40 p.m. PT
update STOCKHOLM, Sweden--Swedish telecommunications company Ericsson reported a deeper-than-expected, third-quarter pretax loss Thursday and forecast a falling market for its key product, mobile networks, next year.
"The slowdown for telecommunications systems accelerated in the third quarter," Ericsson Chief Executive Kurt Hellstrom said in a statement.
Ericsson, which has 80 percent of sales from mobile systems, made a $548.7 million (5.8 billion crowns) pretax loss in the third quarter against market consensus of roughly $425.5 million. The company's sales of $5.16 billion fell short of market consensus of $5.6 billion.
The company also posted a worse-than-expected July-September per-share loss, down from a profit in the same period last year.
Ericsson, the mobile networks producer and handset supplier, also had a more pessimistic outlook for the networks market for 2002 than many of its competitors such as Nokia and Nortel Networks.
"For 2002 we expect sales at least in line with the market development of flat to down 10 percent," Ericsson said in a statement released Thursday.
The new forecast is much more pessimistic than the flat-to-modest growth of the networks market in 2002 predicted by the company in early September.
Despite the pessimism, shares rose 13 cents, or 3 percent, to close at $4.48 Friday.
A 10 percent fall?
"We now estimate the range to be flat to down 10 percent," the statement said. "However, we plan to achieve an operating margin greater than 5 percent for the full year, even with sales declining as much as 10 percent," it said.
This was in line with figures in a Reuters story earlier Thursday that quoted an industry source.
Finland's Nokia, the still-profitable producer of mobile phones, forecast last week a tough market for networks until the second half of 2002, and said its systems sales would drop 20 percent in the fourth quarter.
Ericsson said its network sales in the fourth quarter would fall 10 percent year on year. "Our assumptions are a market downturn lasting well into next year, significant net subscriber additions with continued increasing usage per subscriber, gradual buildup of GPRS traffic over the next 12 months to 18 months and increased deployment of 3G systems during 2002," the statement said.
Ericsson defied market expectations of a loss in the networks business with a 1 percent operating margin on sales of $4.06 million. The market had expected the networks unit to dip into the red for the first time in years. This was also in line with a Reuters report, citing an industry source.
It also reported positive cash flow of $113.4million, in line with an earlier Reuters story, calming fears it would have to issue new shares. Positive cash flow is the company's main goal for this year, and management bonuses depend on its success.
Appointing a new chairman
But the company said in a separate statement that Chairman Lars Ramqvist, often criticized for Ericsson's current misfortunes, would step down at the company's next general shareholders meeting in March 2002.
The CEO of appliance maker Electrolux, Michael Treschow, would be the candidate to replace him, Ericsson said.
The company said in the quarterly report it managed to slightly cut losses in its mobile phone unit, which on Oct. 1 was merged with the handset division of Japanese consumer electronics company Sony.
Ericsson's handset division, which has been losing money since the second quarter of last year showed sales of $785 million against expectations of $756.5 million, and an operating loss shrinking to $398 million from $435 million in the second quarter.
The company said it now expected global handset sales this year at around 400 million units, at the lower end of a forecast of 400 million to 440 million units made in July.
Ericsson said it expected sales in the fourth quarter to be $5.2 billion excluding the parts of the operation shifted to the mobile phone joint venture with Sony.
To return to the black, the company has already announced an efficiency program which entails up to 22,000 job cuts or one fifth of Ericsson's work force.
Ericsson said the plan was going ahead of schedule and that savings this year would reach $662 million rather than the earlier-expected $520 million.
Ericsson also said its customer financing exposure fell by $94.5 million in the third quarter to $2.07 billion, with Brazil and the United States being the markets where the financing was largest.
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