Ericsson 1Q Earnings Seen Weak; Job Cuts, Outlook Eyed
By BUSTER KANTROW
Of DOW JONES NEWSWIRES
STOCKHOLM -- Swedish telecommunications giant Telefon AB LM Ericsson (ERICY), seeking to shore up its bottom line, is expected to slash thousands more jobs when it posts first-quarter earnings Friday.
Ericsson warned last month that it expected a loss between SEK4 billion and SEK5 billion for the first quarter, excluding a capital gain of SEK5.5 billion, and said it would take steps to cut SEK20 billion (around $2 billion) in annual operating costs by the end of the year.
It also announced the elimination of 3,300 manufacturing jobs and steep reductions in outside consultants, and indicated that further job cuts in administrative and sales areas were likely.
Recent press reports have said that between 6,000 and 30,000 more jobs may go.
Johan Carlstroem, an analyst with Handelsbanken in Stockholm, said he expects job cuts of 10,000 to 15,000. Other analysts said they anticipate cuts in the range of 5,000 to 10,000.
An Ericsson spokesman declined to comment on the company's plans. Ericsson had about 105,000 employees at end 2000.
Ericsson's retrenchment comes as competitors in the mobile phone and networks business take similar austerity steps. Tuesday, Dutch consumer electronics company Royal Philips Electronics NV (PHG) said it would cut as many as 7,000 jobs after reporting disappointing first-quarter results and warning that it expected a net loss in the second quarter.
Analysts expect Ericsson's first-quarter results to come in Friday at the bottom end of its March guidance, according to a survey by Swedish forecaster SME Direkt. The consensus estimate was for a pretax-tax loss of slightly less than SEK5 billion, excluding the capital gain from the sale of its stake in Juniper Networks Inc. (JNPR)
Ericsson last month blamed both slowing phone sales and sluggish revenue growth on the systems side, particularly in the U.S., for the earnings shortfall.
Ericsson posted a pretax profit of SEK6.1 billion for the first quarter of 2000 including one-off gains.
While Ericsson's phone unit has been a drag on earnings for more than a year, the news that the systems business was falling short of expectations proved unsettling to investors. Networks are expected to have generated about 75% of Ericsson's first-quarter revenues, and analysts will be keen to hear the company's outlook for sales in the second quarter and whether it senses a carryon effect of the U.S. slowdown.
Analysts expect Ericsson to cut its forecasts for 2001 revenue growth and operating margin, but still believe the company will project that it will earn a profit for the year. Ericsson has previously forecast revenue growth of 15% to 20%, and an operating margin of 6% to 8%.
Haakan Persson, an analyst with Aragon Fondkommission in Stockholm, said revenue growth of 5% to 10% for the year is now a more realistic expectation, although he said growth could be lower if problems at the mobile phone unit don't abate.
Persson said the worst may be over for the phone unit, which he said was hit in the first quarter by both slowing consumer demand and a post-Christmas inventory buildup of unsold phones. He said Ericsson has likely adjusted to the inventory situation by now.
Analysts are also eager to hear whether Ericsson backs off its promise to return the mobile phone unit to profitability by the second half of the year, a target that Chief Executive Kurt Hellstroem stood by in interviews last month but that many analysts now consider unreasonable.
"They have got a lot to prove there," said Magnus Lindh, an analyst with Nordea Securities. "Seeing is believing, and they have got to show profits before (confidence) is fully reflected in the share price."
For the first quarter, the mobile phone, or consumer products, unit is expected to post an operating loss of about SEK7.4 billion, while the mobile systems unit is expected to show an operating profit of SEK3.8 billion, according to the SME Direkt survey.
Ericsson announced in January that it was outsourcing production of its phones to Flextronics International Ltd. (FLEX), a deal that is expected to be finalized this month.
The possibility that Ericsson will strike a strategic alliance for marketing and distribution of phones remains, analysts said. But given the current turmoil in the handset market, several analysts said they doubt the company will have any deal to announce Friday. "It seems like it's difficult at the moment to do an alliance, with the mood the industry is in," said one Stockholm analyst.
Analysts want to hear more from the company about its cost-cutting plans, with several saying they don't expect job cuts alone to be enough for the company to reach its SEK20 billion target.
Carlstroem said he expects Ericsson to ditch its "matrix" management structure, which provides for separate heads for each business unit in a particular country as well as for a separate country director. And he said he expects job cuts to be considerable in the U.S.
Earnings are due to be released around 0530 GMT Friday.
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UK BUSINESS BRIEFS: Vodafone Makes First UK 3G Voice Call
April 17, 2001
LONDON -- Mobile telecommunications company Vodafone Group PLC (VOD) successfully carried out the U.K.'s first live voice call over its new third-generation telephone network Monday. The company said its principle 3G infrastructure supplier is LM Ericsson Telephone Co. (ERICY).
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SWEDISH PRESS: Concern Ericsson May Cut 30,000 Jobs
STOCKHOLM -- There are worries Ericsson (ERICY) will present more job cut plans when it reports first quarter earnings Friday, reports Dagens Industri. According to Swedish news agency TT, there is talk of job cuts of 30%, or 30,000, of Ericsson's total workforce. "It will most likely be of about that size," according to Tommy Jarl, chairman of the Sif trade union at Ericsson Mobile in Linkoeping, southern Sweden.
Newspaper Web site: www.di.se
Jim |
