Ericsson sees Q1 loss, 2002 in black

Jan Strupczewski

STOCKHOLM: Swedish telecoms equipment maker Ericsson reported its first

annual loss on Friday and forecast a return to profit in the second half after a

difficult start to the year.

Ericsson, the world's biggest producer of mobile networks and third biggest

handset supplier, reported an adjusted pre-tax loss of 21.1 billion Swedish

crowns ($2 billion) for 2001 as a whole and a five per cent drop in sales as

telephone operators put investment on hold amid a global economic slowdown.

Including one-off items, the annual loss amounted to 30.3 billion crowns, the

highest ever loss by a Swedish company. The bulk of the losses came from the

handset division. This was merged with a unit of Sony Corp in October and from

that point comes under the heading of an associated company, reducing its impact

on Ericsson's bottom line.

Ericsson said sales in the first quarter would be around 40 billion crowns,

falling more than 31 per cent from the fourth quarter, and that its pre-tax loss

would be similar to the 4.9 billion crowns in the first quarter of 2001.

"Market conditions are going to be rather grim in the first couple of

quarters and afterwards we expect it to turn upwards," chief executive Kurt

Hellstrom told Reuters in an interview.

Chief financial officer Sten Fornell told analysts in a teleconference the

operating margin of Ericsson's key systems unit, which had held flat at one per

cent for the last three quarters, could turn negative in the first quarter. Like

its main competitors Nokia of Finland and Motorola of the United States,

Ericsson has suffered from slowing sales of mobile phone handsets and lower

spending on infrastructure by cash-strapped telecoms carriers.

Share down



Ericsson shares fell 3.8 per cent to 47.8 crowns on the poor first-quarter
outlook and a 43 per cent drop of fourth quarter orders for systems, which

showed a turnaround was nowhere near.

Despite the share fall, two brokerages, Carnegie and Nordea Securities,

upgraded their ratings to "strong buy" from "accumulate" and

to "buy" from "reduce" respectively.

Ericsson has underperformed the Dow Jones Stoxx European technology index by

23 per cent since the start of last year. Ericsson had gained some five per cent

on Thursday after Nokia gave a positive assessment of its sales growth

prospects.

"The sales forecast for the first quarter is some 10 per cent lower than

we expected and that is what is driving the share lower," a Swedish fund

manager with a stake in Ericsson said. The company still expects to reach a five

per cent positive operating margin this year thanks to a restructuring which

slashed 20,000 of the 105,000 jobs at the end of 2000.

Ericsson is confident of restoring profitability despite an expected fall in

sales this year of up to 10 per cent, in line with the market. Ericsson's

pre-tax loss fell to 5.1 billion crowns in the last quarter of 2001 from 5.8

billion in the third quarter, as savings from its restructuring were offset by

losses in its cables, microelectronics and enterprise systems businesses.

Excluding a 1.7 billion crown risk provision for Latin America, the loss was

3.4 billion, better than expectations of 4.4 billion. Ericsson plans not to pay

a dividend for 2001.

Less upbeat



Ericsson's 2002 forecast is markedly less upbeat than that of Nokia, which on
Thursday forecast it would increase sales 15 per cent this year after a weaker

first quarter.

Nokia, the world's biggest producer of mobile phones, reported a healthy 1.63

billion euro ($1.43 billion) fourth quarter pre-tax profit, showing resilience

to the sector's troubles which have caused massive job cuts globally.

Nokia said that after a weaker first quarter, during which it expected group

sales to fall by six to 10 per cent year-on-year, the second quarter would

already see a 10 per cent sales rise and the second half of the year would be

even better.

The second biggest mobile handset maker, Motorola, which also makes mobile

networks and semiconductors, presented a forecast on Tuesday more in line with

Ericsson's view.

Thanks to a series of divestments, Ericsson pulled its cash flow back into

the black, ending the year with a positive 4.2 billion crowns and reducing the

risk it would have to ask investors for funds through a new share issue. It

promised positive cash flow for 2002 as well.

Sony Ericsson



Ericsson's share of the loss at Sony Ericsson, the mobile phone joint
venture formed in October, was 700 million crowns, much less than market

expectations of around two billion.

Ericsson said the unit would make a small loss in the first quarter of this

year, but return to the black later in 2002. Hellstrom said Sony Ericsson lost

market share in the October-December period after selling 6.8 million phones,

but he said this was in line with the company's strategy.

"We have during last year sold a lot of old phones and we are now

getting into new phones where we improve margins and we want to continue to

improve margins and we might sacrifice some quantity for that," he said.

Ericsson expects global handset sales this year to be around 10 per cent higher

than the 390 million units sold in 2001.

(C) Reuters Limited.