Ericsson shines in grim telco market

STOCKHOLM (Reuters) - Swedish telecom equipment giant Ericsson posted a stronger-than-expected fourth-quarter profit on Wednesday, promising deeper savings as it announced 5,000 job cuts.

By 0847 GMT, shares in the company were up 10 percent at 61.6 Swedish crowns, outperforming the DJ Stoxx European tech index, which was up 1.4 percent.

The company, which released the results more than a week ahead of schedule for a fourth consecutive forecast-topping report, also failed to give a specific business outlook. That gave analysts some pause for thought.

Ericsson made an operating profit of 9.2 billion Swedish crowns ($1.1 billion) in the quarter, excluding restructuring costs of 3.0 billion and including a capital gain of 0.8 billion.

The outcome compared with 7.6 billion crowns a year earlier and a median forecast in a Reuters poll of 6.7 billion, excluding non-recurring items of 1.4 billion.

“The fourth quarter is very, very strong,” said Greger Johansson, an analyst at Redeye.

“But at the same time, they take away the planning assumption and increase savings, and that implies their view of 2009 has been lowered,” he said.

“They don’t give much guidance, and I think that some people will get worried about the fact that they don’t say anything about 2009.”

Ericsson’s closest rivals -- Nokia Siemens Networks and Alcatel-Lucent -- have forecast for the market to shrink this year as telecoms operators cap spending and Asian rivals put pressure on prices.

Only this month, Nortel Networks Corp ,NT.N, North America’s biggest telecom gear maker, filed for bankruptcy.

Ericsson sales shot up to 67.0 billion, from 54.5 billion a year earlier, exceeding a median forecast for 56.7 billion crowns.

Chief Executive Carl-Henric Svanberg said there was good demand for the group’s entire portfolio across the world, although he also acknowledged currency movements were a factor in the fourth quarter.

The Swedish crown weakened sharply in late 2008.


Svanberg said the global financial crisis was so far not affecting the mobile infrastructure market much as operators had healthy financial positions and traffic was growing briskly.

However, he warned the crisis was likely to have an impact this year.

“To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009,” Svanberg said in a statement.

One dark spot in the results was the fourth-quarter gross margin, which dropped to 33.6 percent from 36.1 percent, and lagged forecasts for 37.1 percent.

“I’m a bit worried about the gross margin, but ... cash flow is positive, so I think these numbers will be relatively well received today, said Richard Windsor at Nomura Securities.

Ericsson noted operating margins, excluding its Sony Ericsson venture with Sony Corp, had improved. Sony Ericsson announced last week a 261 million euro ($339 million) fourth-quarter pretax loss.

Ericsson said it was stepping up its cost-savings efforts and was cutting 5,000 jobs. This followed cost cuts of 4 billion crowns announced a year ago.

“Cost savings will continue also in 2009. Restructuring charges are estimated to 6-7 billion crowns and annual savings of 10 billion crowns are expected by the second half of 2010, with an equal split between cost of sales and operating expenses,” the company said.

Svanberg said the group’s cash situation gave it an advantage.

“Our net cash position has considerably improved,” he told a news conference.

“It is important, cash is important, and we are very happy with the cash position that we have,” he said.

“We are in fact the only vendor that has positive net cash, and that is a strategic asset.”

Additional reporting by Tarmo Virki in Helsinki, writing by Adam Cox; Editing by John Stonestreet and Andrew Macdonald