Ericsson Shares Plunge After 3rd Quarter Warning
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By THE ASSOCIATED PRESS
Published: October 16, 2007
STOCKHOLM, Sweden (AP) -- Shares of LM Ericsson plunged more than 25 percent Tuesday after the wireless networks maker warned third-quarter sales, operating income and cash flow would be lower than expected.
The news sent shares of the Stockholm-based company tumbling to a three-and-a-half year low.
Ericsson said sales would come in at 43.5 billion kronor ($6.8 billion), and operating income would reach 5.6 billion kronor ($875 million) while it said it would report a 1.6 billion loss ($248.96 million) in cash flow.
The figures were below its own previous outlook, as well as analyst estimates. The company blamed the drop on lower-than-hoped-for sales in mobile network upgrades and expansions.
"The effect of market dynamics is always a matter of judgment," said Chief Executive Carl-Henric Svanberg. "This quarter we have underestimated the effects."
Shares fell nearly 26 percent to 19.58 kronor ($3.06) in Stockholm, reaching its lowest point since Jan. 7, 2004.
In its outlook for the fourth quarter, Ericsson said it expected sales of between 53 billion kronor and 60 billion kronor ($7.82 billion and $9.39 billion), and operating margins in the mid-teens, including its joint venture Sony Ericsson.
Ericsson said it believed the current conditions would prevail in 2008.
The announcement sent other companies in the sector downward as well, including Alcatel-Lucent SA, the world's biggest maker of telecom equipment, which saw its shares drop more than 4.5 percent to 6.58 euros ($9.36). Last month Alcatel also cut its sales outlook for 2007 on an expected drop in orders from North America.
Shares of Nokia Corp., the world's largest handset maker, were down nearly 1 percent to 25.41 euros ($36.15) in Helsinki on concerns that the woes affecting Ericsson could taint the performance of its joint venture with Siemens AG, Nokia Siemens. Shares of Siemens fell almost 1.6 percent to 93.80 euros ($133.44) in Frankfurt.
Anders Berg, an analyst with Evli Bank in Stockholm, said Ericsson's profit warning illustrated "a number of problems," saying the rollout of larger projects with lower margins had not been able to compensate for high-margin businesses that are not doing well.
"This raises some questions about their strategic direction and internal control," he said.
Berg said it appeared Ericsson was airing all of its problems before the release of its report. "That means they have control of their numbers."
As for the outlook, Berg said "it's worse than thought. The whole year is. And it gets you wondering what 2008 will be like." |
