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To: LindyBill who wrote (35297)	7/16/1999 1:50:00 PM
From: SteveG	Respond to of 152472

just for fun: ERICY: 2Q Results Likely To Echo First Q Decline-Pt CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research Americas U.S./Technology/Wireless Telecommunications Equipment Marc Cabi Ian Burgess STRONG BUY LARGE CAP Ericsson (ERICY) Second Quarter Results Likely to Echo First Quarter Decline. Expect Attention to Focus on Management Change and Handset Launches Summary Ericsson is expected to announce its second quarter results before the market opens on Friday July 23, 1999. The conference call will follow the release and is scheduled for 9 :00 am EST. The number is 212-896-6026. New management is expected to outline its strategy for recovery. Business trends in wireless infrastructure and the introduction of new handsets this summer should confirm H2:99 recovery story. Q2:99 results will once again contain heavy restructuring costs as the company moves to reduce headcount and improve profitability in its key business segments. New team is likely to accelerate activities. Emerging market economic conditions are beginning to ease. China and Brazil are important markets that should improve later this year. Contract wins for former Infocom may signal renewed momentum is near. We reiterate our Strong Buy rating with a $35 price target. Price Target Mkt.Value 52-Week 7/15/991 (12mo.) Div. Yield (MM) Price Range $29.38 $35 $0.22 0.7% $58,671.9 $15.00-34.13 Annual Prev. Abs. Rel. EV/ EBITDA/ EPS EPS P/E P/E EBITDA Share 12/00E $1.15 25.5X 87% 10.8 $2.20 12/99E 0.73 40.2 124% 15.3 1.56 12/98A 0.80 36.7 98% 14.9 1.60 March June Sept. Dec. FY End 1999E $0.06A $0.13 $0.15 $0.39 Dec. 1998A 0.10 0.21 0.20 0.28 1997A ROIC (12/98) NA Total Debt (12/98) bn 1.1 Book Value/Share (12/98) $3.7 WACC (12/98) NA Debt/Total Capital (12/98) 12.4 Common Shares (mil) 1,997 EP Trend2 Est. 5-Yr EPS Growth 20% Est. 5-Yr. Div. Growth 20% 1On 7/15/99 DJIA closed at 11,186.4 and S&P 500 at 1409.62. 2Economic profit trend. Ericsson is a leading system supplier for both wired and wireless telecommun-ications equipment, including base stations, mobile phones, equipment for wireless access to telecommunications networks and mobile data communications; its wireless handsets and infrastructure are marketed toward GSM, TDMA and AMPS. Investment Summary Second Quarter Results Administrative details Ericsson's Q2:99 results are scheduled to be released before the opening of the market on Friday July 23, 1999. The conference call will follow the release and is scheduled for 9 :00 am EST. The Conference call phone number is 212-896-6026. Key points Ericsson Q2:99 results should continue to be hampered by the ongoing restructuring programs that are in place. As the company does not account for these in the form of one-time charges, the results will continue to include these as part of the operating scenario. Thus, we forecast Ericsson to report $0.13 per share versus $0.21 per share last year. The consensus estimate is $0.15. Management guidance calls for earnings to be down 40-50% from last year based on its expectations for restructuring expenses. Management changes announced abruptly last week will be a key highlight of the earnings discussion. We believe two factors played a heavy role in the management changes: 1) the slow pace of cost cutting program implementation; and, 2) delays in naming a CFO. We expect that the company can address these issues more clearly in this upcoming conference call and provide better insight into the strategic decisions required to improve corporate financial performance. We believe Ericsson's wireless infrastructure business will be the highlight of the quarter. Demand for Ericsson's infrastructure equipment has been extremely strong given the growth of subscribers and usage rates. Major customers of the company continue to experience network capacity constraints and are raising their capital expenditure plans to correct these issues. AT&T and others have announced that capital spending plans for the year will be raised to deal with customer issues. Ericsson has also launched commercial production of the first of a series of new phones. The T-18, a new software version of the 788 began shipping in mid quarter. We believe initial demand for the product is solid and that with the introduction of a family of T-series products the company can improve on its handset business financial performance. Its high end T-28 entered commercial production this month and we anticipate that this product will ship at the end of July. We believe commercial volumes for the T-28 are likely by September as we enter the Q4 selling season. Infocom restructuring has moved slowly. We expect management will address these concerns and preview corrective measures that will need to be taken to right size this business. We expect the new management team to be much more attentive to cost cutting efforts and the timely delivery of measurable results. Emerging market conditions have been a major problem for Ericsson over the past six months. We anticipate that this is the final quarter for the very heavy negative comparisons the company will have to endure. Economic recovery is appearing on the horizon in Brazil, Southeast Asia and other markets that should allow Ericsson to see a gradual recovery of growth. Order intake Figure 1 shows the major order announcements for the second quarter. Quantifiable orders amounted to US$2.2bn somewhat below the record US$3.8bn announced in the second quarter in 1998. The lower intake reflects both the absence of values attached to wireless data orders (GPRS and third-generation) and the tough comparison quarter: Q2 1998 orders were four times greater than a year earlier. Earnings revisions Consensus earnings are still being revised downwards, notably in respect of the 1999 estimates, with minor downgrades to the 2000 forecasts. Although we expect consensus numbers to ease further, we do not see this as an impediment to future price performance. In our view, the key is to identify the cause of the downgrades rather than focusing merely on the trend or size. Second Quarter Results Likely to Echo First Quarter Decline. Expect Attention to Focus on Management Change and Handset Launches Since the start of 1999, the wireless infrastructure has outperformed expectations with market share gains and margin expansion. Handset expectations have also changed little as the company has ramped up new models on time-for example, the T18 launch in May. The downgrades have come from four main sources: increased restructuring costs (a feature likely to become more prominent in the wake of the management change last week); weaker profits in the wireline business undermined by soft Latin American business and a high cost-structure; provisions for customer risk following the devaluations in Asia and Latin America in the past twelve months; and the dilutive effects of new acquisitions Recommendation Ericsson retains its position as a leading supplier of wireless solutions that it has sustained for many years. We continue to expect that the company will extend its dominance in this market segment. Our increased price target of $35 reflects the improving fundamentals in the wireless infrastructure business and the greater visibility into the handset market as new models commence shipment in commercial volumes. We reiterate our Strong Buy rating.