UPDATE 5-Ericsson Q3 disappoints as tough market hits sales

* Op income before JVs 5.5 bln crowns, vs 5.8 bln consensus

* Q3 sales down 5.6% to 46.4 bln crowns, below all forecasts

* Says cost cuts running ahead of plan

* Shares down 6.9 percent

(Updates shares, adds fresh CEO, analyst comment)

By Simon Johnson and Sven Nordenstam

STOCKHOLM, Oct 22 (Reuters) - The global downturn finally caught up with top mobile network gear maker Ericsson (ERICb.ST) as it missed forecasts due to a drop in third-quarter sales and would not say when things might improve.

Shares in Ericsson had tumbled 6.9 percent to 68.90 crowns by 1417 GMT, casting a shadow over those of smaller rival Alcatel-Lucent (ALUA.PA), which fell 2.85 percent.

"Ericsson says it's a tough market, and this creates concerns over demand," said Swedbank analyst Hakan Wranne.

The Swedish company had hitherto proved resilient to the global financial crisis, managing to maintain profits and sales, but capital spending cuts by operators during the worst economic crisis in decades finally fed through.

"It's very much as we have talked about from the beginning of the year; it's unrealistic that we won't get affected," Chief Executive Carl-Henric Svanberg said. "And we have talked about emerging markets, and there were notable effects in emerging markets."

Svanberg, who leaves to become chairman of oil giant BP (BP.L) next year, declined to say when things would improve.

"On Q4 and Q1, that's a close horizon, and we are not going to issue any particular guidance there," Svanberg said. "Over time, with the traffic increases that are in the networks, the markets will recover."

Pierre Ferragu, analyst at Bernstein Research in London, compared conditions now with the market downturn in 2001, which had lasted a couple of years.

"This would imply a recovery only in 2011. But the necessity for investment is much stronger today and would argue for a quicker recovery," he said.

Last week, Ericsson rival Nokia Siemens Networks [NSN.UL] was less gloomy than it had previously been when it gave its outlook after the third quarter.

It sees a decline in the equipment market of around 5 percent in euro terms in 2009, versus its earlier prediction of a 10 percent decline. It did not give an outlook for 2010.

COMPETITION

As if the market environment were not enough to deal with, competition from Chinese vendors Huawei [HWT.UL] and ZTE (0763.HK)000063.HK has compounded problems for some equipment suppliers.

Last week Nokia (NOK1V.HE) took a 908 million euro ($1.4 billion) writedown at its Nokia Siemens Networks joint venture and said it was losing market share. [ID:nLF596616]

Svanberg said Ericsson had taken market share in the July-Sept period, adding that Chinese operators did not have a particularly big cost advantage, given that Ericsson had many of its operations in low-cost countries.

However, incoming chief executive Hans Vestberg, currently chief financial officer, said a 10 billion-crown cost-cutting programme would be extended. He gave no size for expected savings.

Ericsson's third-quarter sales fell 5.6 percent to 46.4 billion crowns from 49.2 billion a year ago, missing all forecasts in a Reuters poll of 36 analysts, which ranged from 47 billion to 56.8 billion.

Operating profit was 5.5 billion Swedish crowns ($795 million), excluding restructuring charges and its loss-making joint ventures, down 3 percent from a year ago, and missing the 5.8 billion average poll forecast.

Sales at Ericsson's key network equipment unit slipped 8 percent year-on-year.

Sales at Ericsson's Professional Services unit and Multimedia units also lagged analysts' mean forecast.

Svanberg said Ericsson was confident it could protect profit margins despite the economic climate. (Additional reporting by Niklas Pollard, Adam Cox, Anna Ringstrom, Eva Odefalk, Helena Soderpalm, Katerina Gustafsson, Tarmo Virki; Editing by David Holmes and Will Waterman) ($1=6.921 Swedish crowns)