Ericsson warns on Q2 profit, to cut 12,000 jobs

Jan Strupczewski

STOCKHOLM: Swedish telecom equipment maker, Ericsson announced on Friday that

it would record another loss in the second quarter and would go in for an

additional 12,000 job cuts, even as it struggles to return to profit.

Ericsson chief executive Kurt Hellstrom, speaking after the group announced a

first-quarter loss roughly in line with expectations, told Reuters he still

hoped to return the ailing mobile phone unit to profitability in the second half

of this year.

Ericsson shares fell 13 per cent to 60 crowns at the start of trade in

Stockholm, reversing overnight gains in New York, as investors digested the

troubled group's fifth profit warning in less than a year. Ericsson, the world's

biggest producer of mobile networks and third biggest handset supplier, said the

current market situation meant it was unable to give an earnings forecast for

the whole year.

Hellstrom declined to reiterate the forecast made in January that the firm

would show a 6-8 per cent positive operating margin for the whole of 2001.

Ericsson reported a pre-tax loss of 4.9 billion crowns ($487.2 million),

adjusted to a capital gain of 5.5 billion as against market expectations of

losses to the tune of 5.05 billion.

"For the second quarter of 2001 we see a lower growth rate in systems

sales and lower phone sales compared with the second quarter of last year,"

Ericsson said in a statement. "Income before taxes will not improve

compared with the first quarter of 2001," it said.

Fierce competition

Ericsson is losing money because of large losses in its handset division,

fierce global price competition and a global economic slowdown which has cut

demand for telecoms services and equipment. "For the consumer products

division we still have our objective to get back to profit in the second half of

the year," Hellstrom said.

"The objective stands, but the reality is what we have to fight with. We

have taken cost-cutting measures to adapt to a situation where we don't see any

improvement in market conditions for the rest of the year." Total sales in

the first quarter fell five per cent to 55.9 billion crowns against the same

period of last year and operating margin plunged to minus eight percent from

plus 11 per cent.

The new job cuts of up to 10,000 plus 2,000 in mobile phones take the total

announced so far this year to 22,000 - more than one fifth of the workforce. The

package, producing annual savings of 38 billion crowns includes the full

outsourcing of mobile phone production to Singapore-based Flextronics, already

announced.

On Thursday, Ericsson said it was in talks with Japan's consumer electronics

leader Sony Corp to team up in mobile phones. Such an alliance would turn the

heat up on Nokia Oyj and Motorola Inc, the world's number one and two handset

makers.

Ericsson gave no further news on the talks in its statement on Friday. Nokia,

which also reported its first-quarter results on Friday, said its pre-tax profit

was better than expected at 1.4 billion Euros. But the biggest and most

profitable of the handset players was not immune to the slowing global economy

and Nokia cut its sales and profit outlook for the full year.

(C) Reuters Limited 2001.