UPDATE 2-Elcoteq expects turn-around soon, shares up

Wed Apr 23, 2008 8:40am EDT

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HELSINKI, April 23 (Reuters) - Finnish electronics contract manufacturer Elcoteq SE ELQAV.HE posted narrower losses than in the first quarter of 2007 thanks to cost cuts and said it expects to make a profit in the second quarter.

The Finnish firm, which has lost some of its business with the world's top cellphone maker Nokia (NOK1V.HE) to Asian rivals, said its profitability would improve, reaching 2 percent operating profit margin towards the end of 2008.

Shares in Elcoteq initially opened down after the report, but were trading 4.5 percent higher at 4.68 euros by 1214 GMT, outperforming the slightly firmer DJ Stoxx European technology index .SX8P.

Elcoteq's profits and sales missed analysts' average forecasts, however.

The company said on Wednesday it expects second-quarter operating income to be positive with net sales higher year-on-year.

"There is a lot of trust in the company on its ability to make a turnaround. But I remain sceptical," eQ Bank analyst Jari Honko said.

For 2008 the company forecast sales to be flat year-on-year with operating income, excluding one-time restructuring costs, to improve substantially.

Firms in Elcoteq's customer sectors, including telecom network gear maker Nokia Siemens Networks [NSN.UL] and Philips Electronics <PHG.AS (PHG.N), have in recent weeks posted pessimistic market outlook views, but Elcoteq's Chief Executive Jouni Hartikainen said this was good news for Elcoteq.

"When our customers have a boom, that is good news for us. When they start to have gloomier outlooks, it looks even more positive to us because then they start really outsourcing," Hartikainen told news conference.

"There are more deals available at the moment than you can imagine. We hope to get part of that," he said.

Elcoteq reported a January-March pretax loss of 15.4 million euros ($24.4 million), up from a loss of 59 million a year ago. It missed the average forecast of an 11 million euro loss, but was within the range of estimates.

Elcoteq has previously flagged a cost-cutting plan and it said it expects to reach annual savings of about 90 to 100 million euros with full effect by the end of the year. (Reporting by Sami Torma; Editing by Louise Ireland/Andrew Hurst)

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