ricsson's outlook uncertain, Q3 loss widens

  • 2002-10-24
  • Jurgen Hecker

Swedish telecoms giant Ericsson, reporting a widening loss and lower sales in the third quarter Oct.18, said the industry outlook remained uncertain and the market would only stabilize in 2003.

Ericsson lost 5.6 billion Swedish kroner (614 million euros) at the net level, against 4.3 million in the third quarter of 2001, a result worse than anticipated by financial analysts.

Sales dropped 30 percent to 33.5 billion kroner.

Sony Ericsson, which groups Ericsson's handset operations, contributed 500 million kroner to the Swedish company's loss, much higher than the 330 million predicted by analysts.

As part of the company shake-up, Ericsson expects to reduce its workforce to below 60,000 by the end of next year, from 71,700 at present.

Since the sharp reversal in Ericsson's fortunes, the earnings announcements have been disappointing, and the most flattering thing that one broker had to say about the Oct. 18's report was that "it wasn't as bad as Ericsson usually is."

However, he also said that "all the figures were in the lower end of expectations. It wasn't an all-bad report, but it was at the lower end everywhere, margins were poor, order intake was poor and of course the result itself was poor".

Chief executive Kurt Hellstroem promised that his company would grow again in the long term but had little reassurance to give for the immediate future.

"In the near term the industry outlook continues to be uncertain. Many operators pursue more gradual 3G rollouts or target fewer markets," he said, referring to third-generation mobile-telephone networks.

The only hope is that the mobile telecommunications market will decline somewhat more slowly in 2003 than the dramatic pace seen this year, he said.

"Hopefully we'll begin to see a stabilization. That's what we are planning for," Hellstroem told a news conference following the results announcement.

Ericsson still expects to return to profitability "at some point in time" in 2003, he said.

The company intends to refocus its worldwide share listings to three key markets, Stockholm, London and the U.S. exchange Nasdaq, and has applied to be de-listed from Euronext Paris, the German exchanges in Duesseldorf, Frankfurt and Hamburg, as well as the Swiss stock market.

In order to remain on the tech-heavy Nasdaq, where Ericsson has become a penny stock, the company also announced a reverse share split, exchanging every 10 of its American Depositary Shares for one new ADS.

Ericsson's shares nosedived following the results, falling as low as 4.50 kroner in early trading on the Stockholm stock exchange. However, company officials saved the day by telling analysts in a conference call that the situation in the networks division was better than the financial community had assumed, prompting a late share price surge on Oct.18.

Earlier, the Ericsson results prompted profit taking across Europe, with the Pan-euro zone Euro Stoxx 50 index falling as investors opted to latch on to the grim news from Sweden, rather than encouraging results from North American companies.

Analysts speculated that that point will probably not come before the fourth quarter, which rules out a profit for the full-year 2003.