* Operating profit inc JVs 4.2 bln SEK vs forecast 4.5 bln
* Says sales are under pressure
* Shares drop 7 pct, biggest fall in 21 months
(Adds comment, background, detail, shares)
By Sven Nordenstam and Simon Johnson
STOCKHOLM, Oct 24 Ericsson's
turnaround drive was thrown into doubt on Thursday as the
world's biggest mobile networks maker missed third-quarter
profit forecasts and said sales were coming under pressure in
the United States and Japan.
Shares in the Swedish group dropped 7 percent, the biggest
fall by a European blue-chip stock, and dragged down
rivals Nokia and Alcatel-Lucent.
A decade-long price war in Ericsson's industry, launched by
Chinese vendors Huawei and ZTE, has already
forced suppliers like Nortel and Motorola out of the market.
In a do-or-die effort, struggling Alcatel-Lucent this month
announced it was slashing 10,000 jobs - one seventh of its
workforce - its sixth restructuring plan since 2006.
Ericsson has had some success recently in winning business
from the swathe of telecoms firms looking to invest in faster
fourth-generation networks. Vodafone, for example, has
said it will boost spending by 6 billion pounds ($9.7 billion)
over three years, and analysts expect others to follow.
But the Swedish group said on Thursday that while business
in Europe was picking up and profitability there improving,
activity was slower in the United States and Japan, where big
projects were coming to completion.
"We are currently seeing sales coming under some pressure,"
Ericsson chief executive Hans Vestberg said.
Analysts also pointed to a lower gross margin than expected,
which fell compared to the second quarter.
"This trend in particular should cause pressure to consensus
profit expectations today, more so than the miss at the top
line," Barclays said in a research note.
Earnings before interest and tax were 4.2 billion Swedish
crowns ($658 million) in the third quarter, up from 3.1 billion
a year earlier, including joint ventures, but missing a forecast
of 4.5 billion in a Reuters poll of analysts.
Sales were 53.0 billion crowns, well short of the forecast
55.1 billion, and down on last year's 54.6 billion.
Sales at Ericsson's key Networks unit, which accounts for
just over half of revenue, rose 4 percent year-on-year, adjusted
for currency swings. That was the lowest growth in a year and
well below the 7-9 percent in the three previous quarters.
"The report raises a lot of questions about the future,"
said Bengt Nordstrom, head of telecoms consultancy Northstream.
He also pointed to signs the competitive environment for
Ericsson could get tougher.
Finland's Nokia has this year turned into more streamlined
rival by fully taking over its previous network joint venture
with Germany's Siemens - Nokia Siemens Networks (NSN)
- and selling its handset business to Microsoft.
That move echoed Ericsson's own disposal of its handset
joint venture to partner Sony in 2011 and has given Nokia a
clearer focus and better finances to support an aggressive
campaign to grab market share new generation networks.
"When it comes to the general market, it should be noted
that one of Ericsson's competitors, NSN, with new owners and
capital, are very active in many markets resulting in continued
tough pricing pressure going forward," Nordstrom said.
The need for scale has led to speculation that Nokia and
Alcatel-Lucent will merge and sources have told Reuters the
Finnish company has looked at the possibility.
Ericsson shares were down 7.1 percent at 78.30 crowns at
1130 GMT, on track for their biggest single-day fall in 21
months. Nokia shares were down 3.2 percent while
Alcatel-Lucent's fell 3.0 percent. Both firms report earnings
"We see a rather negative readacross for Alcatel-Lucent, as
Ericsson's sales were down materially in North America, a region
to which Alcatel-Lucent is overexposed," Bernstein analysts said
in a research note.
($1 = 6.3794 Swedish crowns)
(Additional reporting by Olof Swahnberg; Editing by Jane
Merriman and Mark Potter)