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

To: Eric L who wrote (4989)	4/21/2002 6:25:26 PM
From: elmatador	Read Replies (2) \| Respond to of 5390

Investors anxiously await Ericsson results By Christopher Brown-Humes Published: April 21 2002 17:23 \| Last Updated: April 21 2002 19:58 Ericsson, the Swedish mobile phone manufacturer, will on Monday report first-quarter earnings regarded by investors as a crucial guide to its turnround story against the gloomy outlook provided last week by Nokia, its Finnish rival. Nokia forecast that handset sales growth will be modest this year, rising from 380m to 400m-420m. In other words, the rebound from last year's trough will be much slower than previously anticipated. Last year, handset sales shrank for the first time in the industry's 20-year history. Ericsson shares fell heavily on Thursday and Friday after the Nokia comments, and it is much more heavily exposed to network sales than its larger rival. Indeed, it has already warned that the infrastructure market could shrink by up to 10 per cent this year. Analysts have abandoned any hope of Ericsson reaching its targeted 5 per cent operating margin this year, with the expected second-half rebound from a very weak first half unlikely to happen. The company warned in January that it would post a loss of about SKr4.8bn ($468m) for the first quarter, and the guidance issued for the second quarter is viewed as a crucial guide for its full-year performance, with speculation that it may be forced to warn on full-year profits. Increasingly in focus is the need for further cost-cutting at the group, which has already shed 22,000 jobs in the past year. Whereas the last round of restructuring concentrated on administration, consultants and handsets, analysts now expect that its core network business will have to shrink to adapt to the order drought. "They have got to come through with increased restructuring, otherwise the market will be disappointed," says Peter Knox, head of technology research at Commerzbank in London. Ericsson's new chairman, Michael Treschow - nicknamed Mike the Knife - only took over his new position last month. It could be that his first job at the company is to wield the very knife for which he is famed. The deeper worry raised by Nokia's comments is that the industry will never again reach the heady growth rates of more than 40 per cent a year achieved in the late 1990s. Indeed, some analysts worry that even double-digit growth might by hard to obtain, with telecommunications equipment makers being seen more as cyclical stocks than growth ones. "It could be that a company like Nokia comes to be seen as a mature consumer product business, like Proctor & Gamble, throwing off lots of cash but with little top line growth," says Mark Davies Jones, analyst at Schroder Salomon SmithBarney in London. "That is a very different proposition to the strong top-line growth that people have been used to." Jorma Ollila, Nokia's chief executive, insisted last week that growth would resume next year. He attributed the slow handset replacement market this year to economic factors. Double-digit growth would return in 2003-2005, he said, as the global economy recovered and third-generation services multiplied. But analysts were struck by the change of tone, which helps explain why Nokia's shares fell more than 15 per cent over two days. "When the last optimist in the business isn't so optimistic any more, it's very telling," said one. Nokia, the world's leading maker of handsets, quietly dropped any mention of the 25 to 35 per cent growth rate that has been its target over the last few years. Its best case growth scenario, even in 2003-2005, seemed nearer 25 per cent. Analysts are sceptical about this. They believe that people are no longer upgrading their phones so much because the trend towards ever lighter, smaller and better-designed phones with longer battery lives has largely come to an end. Moreover, they are still waiting for the must-have 3G services and applications that are going to drive people to replace their phones more often. "There aren't any applications out there. There's just MMS (multimedia messaging)," says Mr Knox. Pessimists argue that, while mobile voice was driven by need, data services will be driven by "gimmicks" - which is not likely to prove nearly such a strong driver of sales.