Ericsson Outlook Uncertain

STOCKHOLM – Swedish telecoms equipment maker Ericsson reported a second quarter loss in line with expectations on Friday but said market uncertainties had worsened, making a forecast for the full year impossible.

The world's biggest maker of mobile network systems and fourth biggest handset maker managed to increase sales of systems -- a key division, which generates most of its earnings -- and said it had returned to positive cash-flow.

It also reported a smaller than expected loss at its handset division and reiterated its planned handset joint venture with Japan's Sony Corp was on track to start on October 1 and be profitable from the start.

Investors initially welcomed the report, taking the share price up two percent to 52 Swedish crowns, before it fell back to trade at 49 crowns by 1055 GMT.

The share has fallen more than 78 percent since its peak in March 2000, and the company has shed half of its market value so far this year.

``The margins were good, the cashflow quite simply impressive and the loss on telephones was smaller than expected -- in all it was a good report,'' said Handelsbanken analyst Lars Soderfjall.

However, there was growing investor concern at the lack of guidance on when business is expected to pick up.

``Now uncertainty has increased even further, particularly in the U.S. and Western Europe regarding the duration and severity of the current unfavorable market environment,'' Ericsson said.

``As a consequence, we refrain from specific guidance for the third quarter and the full year,'' it said in a statement.

NO Q3 GUIDANCE CAPS SHARE PRICE

Investors were disappointed by the lack of near-term guidance. ``Uncertainty about the future must be reflected in the price and that is why the share is not rising,'' said a Swedish fund manager, who asked not to be named.

Some investors said Ericsson's caution about the outlook could be tactics to keep the powerful Swedish trade unions in check at a time when the company is laying off up to 22,000 people in a global efficiency program.

``They are too much into their restructuring and cutting down staff and they don't want to be too positive about what can happen because of the trade unions,'' said Jorgen Vrenning, fund manager at Catella Fonder in Stockholm.

Ericsson showed a 5.3 billion Swedish crown ($497.7 million) adjusted loss for the April-June period against a 4.9 billion loss in the first quarter, in line with market consensus.

The result was weighed on by losses in its mobile phone handset division and falling margins in the still profitable mobile systems unit, as telephone operators worldwide put new investment on hold amid a global economic slowdown.

``Many of our customers have delayed spending on network expansion and in some cases postponed contracted deliveries. We cannot predict how long this situation will prevail as we have yet to see signs of improvement,'' Chief Executive Kurt Hellstrom said in a statement.

Ericsson's order book fell to 61.2 billion crowns from 75.5 billion in the first quarter and margins in its mobile systems division dropped to one from four percent.

COST CUTTING ON TRACK

Ericsson said its cost-cutting measures were on track and it hoped to boost systems margins by the end of the year.

``With the efficiency program, we expect to see the benefits from that during the second half and in particular in the final quarter of the year and this should allow us to improve margins again,'' Hellstrom told Reuters.

But the margins would benefit from the full impact of the efficiency program only in 2002 when the company's annual savings are to reach 38 billion crowns against 5.5 billion expected this year.

Hellstrom said he believed Ericsson had snatched market share in current generation GSM standard wireless systems from arch-rival Nokia in the quarter.

He said he did not expect third-generation (3G) mobile systems, which offer multimedia services and always-on Internet access, to bring in significant revenue until 2003, with trial networks launched this year and many commercial launches in 2002.

The company's exposure to customer financing increased in the second quarter to 23 billion crowns from 21 billion in the first quarter, partly due to the weakness of the crown.

MARKET UNCERTAINTY DEEPENS

Ericsson's reluctance to give a specific forecast struck an ominous chord with comments made late on Thursday by Nortel Networks Corp, the world's biggest supplier of telecoms equipment.

Nortel lived up to an earlier warning to report a second quarter loss of $19.4 billion as revenues declined and said market uncertainty persisted.

``Visibility still remains clouded so there is no forecast at this time... we are pleased with our cash position and liquidity of the corporation,'' said Chief Executive John Roth.

In addition, the world's biggest mobile phone handset maker Nokia said on Thursday its third quarter would be worse and could not give precise guidance on the fourth quarter.

SONY JV ON TRACK

CEO Hellstrom explained the joint venture with Sony would be profitable because Ericsson would keep the two main loss-making parts of the handset business and transfer only the profitable areas of the division, which include sales and marketing.

However, it cut its forecast for global handset sales this year to 400-440 million units from the previous estimate of 430-480 million.

Ericsson also said its cost-cutting program, envisaging job cuts of up to 22,000 or one fifth of the workforce, was on track with half the planned sackings already carried out, but said it was ready to cut costs further if need be.

Ericsson also reported a sharp improvement in its cash flow in the second quarter to 4.3 billion crowns from a 17.7 billion crown outflow in the first, reducing the risk it would have to ask for more money from the financial markets.

($1-10.648 Swedish Crown)