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Technology Stocks : Ericsson overlook? -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (3514)	7/23/1999 4:24:00 AM
From: elmatador	Respond to of 5390

ERICSSON SIX MONTH REPORT Ericsson, one of Investors Core holdings, released its six-month report on Friday, July 23. Net sales increased by 12 percent to SEK 92,383 m. Income before taxes decreased by 44 percent to SEK 4,258 m and Income per share amounted to SEK 1.74, a decrease by 35 percent. Mobile systems' growth over 40 percent. Strengthened leadership in third generation (3G) wireless systems with key contracts and acquisitions. Consumer products down at breakeven profitability on 31 percent volume increase. New mobile phones will have a positive impact on income. New executive leadership for fast improvement of operational performance. Ericsson forecasts the pretax profit for 1999 to be lower than in 1998. For the year 2000 Ericsson anticipates strong improvements with a profit before taxes better than in 1998. Net sales by comparable units increased by 14 percent. The benefits of strong sales growth were offset by a drop in sales and profitability within Consumer Products, increased operating expenses for all segments, negative results associated with acquired units and a deteriorated financial net due to a negative cash flow. Executive leadership The negative trend of Ericsson's financial and operating performance has been of major concern to the Board of Directors. Consequently, a change of the executive leadership was implemented on July 7, 1999. Its primary charter is a fast improvement of the operational performance of the company. The immediate focus will be to secure a faster implementation of the restructuring program and to complete the transition to the new organization. Improved time to market of new products and competitive positioning will also be secured. The Board of Directors and the new executive leadership confirm and fully support the previously outlined strategy. Income before taxes was SEK 4,258 million (7,571), which is 44 percent lower than the income in the first six months of 1998. This includes SEK 900 m of capital gains from sales of shares in Intracom. The reduction in income before taxes from last year is due to a SEK 2,600 m. lower operating margin within Consumer Products, restructuring costs of SEK 600 m., SEK 300 m. in negative results for acquired units and additional provisions of SEK 1,300 m. for market risks and customer financing. (Total provisions at the end of the period were almost SEK 13,200 m.) Sales and Margins Ericsson's net sales in the first six months of 1999 increased by 12 percent to SEK 92,383 m. (82,250). Second quarter sales were strong, up 16 percent over last year and 22 percent over the previous quarter. The largest business segment, Network Operators and Service Providers, increased sales by 22 percent to SEK 64,314 m. Enterprise Solutions increased sales by 10 percent to SEK 8,278 m. whereas sales for Consumer Products declined by 8 percent to SEK 20,064 m. Outlook As we have said before, 1999 is a year of investment and preparation for the next phase of Ericsson's development. The first six months of 1999 was a difficult period. The result is in line with what had been indicated earlier. We are not, however, satisfied with the performance. For this reason and in view of present uncertainties we at this time give a somewhat more detailed outlook. Ericsson has taken actions to implement the strategic plan in a more operational mode in order to secure realization of Ericsson's long term objectives. For the full year, we expect development at least in line with earlier indications, which was a revenue growth around ten percent. For 1999, the millennium issue is causing some uncertainties regarding our customers' investment- and procurement patterns during the remainder of the year. There is, however, at this stage no clearly discernible trend. In addition there are uncertainties related to development in certain markets. Despite a stronger second half, we expect income before tax including restructuring charges to be lower than in 1998. For year 2000, although difficult to predict, Ericsson anticipates a strong improvement in performance. Ericsson anticipates an income before taxes better than in 1998. This is based on the following assumptions: 1. Continued strong growth in mobile systems. 2. Positive contribution from the recently acquired units, especially the CDMA- infrastructure operation. 3. Improved control of operating expenses and working capital plus the restructuring program will provide a sound base for further growth and profitability. 4. The new mobile phones portfolio will have a positive impact on company income. Looking at the longer term, Ericsson is seeking a market defining role for wireless Internet. We are in effect creating the first mobile society. A society where information follows the individual - not the other way around. Our forward looking strategy is to combine our data networking portfolio with IP and ATM development in our fixed and wireless network systems. We will offer integrated multiservice next generation networks based on IP and ATM. In a few short years, networks will run principally on IP and ATM - the technology that powers the Internet. Wireless will be the primary way to access those networks. Mobility in all of its aspects will be the value added differientiator from today's services. A marriage of wireless and the Internet will enable "always on" mobile access for users on the move. Wireless Internet with mobility is the growth opportunity in the industry. It is already in mobile phones and laptops. Wireless will be in all sorts of PDAs and other portable data devices. The future world of the Internet will not be PC centric. It will be mobile device centric. It is not only the devices that are changing. The networks behind them are changing too. Being primarily a network infrastructure company, this is of strategic importance to Ericsson. Ericsson is well positioned to offer clear evolution paths for our customers to quickly transition to next generation networks with wireless Internet capabilities. With these preconditions, Ericsson has a unique opportunity to improve revenue and profitability to remain the leading supplier in a mobile enabled world.