The Innevitable Q3 Warning
* The company insisted it was not warning about profits
* Ericsson insisted its competitive position was strong and that it was "among the most liquid and well-capitalised companies in the industry."
>> Ericsson Warns Of Sales And Orders Fall
Christopher Brown-Humes
Stockholm
Financial Times
September 30 2002
The crisis at Ericsson deepened on Monday when the Swedish telecoms equipment maker warned that it was facing a further downturn in sales and orders.
The group's B shares plunged 14 per cent to SKr3.37, a ten year low and below the recent deeply-discounted rights issue price of SKr3.8. At their peak in March 2000 the shares stood at SKr230.
Ericsson warned sales, and particularly orders, would be below second quarter levels when they totalled SKr38.5bn ($4.15bn) and SKr35.3bn respectively, but it did not quantify the likely extent of the fall. The second figures were more than 30 per cent below the levels achieved in the same 2001 period.
The company insisted it was not warning about profits, but its comments served as a reminder that the equipment market is still deteriorating rather than stabilising.
Ericsson said its position was no different to other telecom equipment suppliers as the entire industry was facing a drought in orders due to spending cutbacks by debt-strapped telecom operators.
Last week Canada's Nortel Networks, one of Ericsson's main rivals, cut its third quarter revenue outlook, adding to gloomy market assessments already given by Nokia, Lucent and Alcatel.
"The market remains uncertain with few signs of stabilizing in the near term," Ericsson said.
The orders drought has been particularly acute in western Europe, due to the huge sums paid by many operators for 3G licences, but there has been a slow-down even in countries like China, where subscriber growth is still rising strongly.
Ericsson insisted its competitive position was strong and that it was "among the most liquid and well-capitalised companies in the industry."
It has an extensive restructuring programme underway to bring costs down to a level at which it can break even on annual sales of SKr120bn.
"We believe we have sufficient resources to fund our restructuring actions and cover our losses until we return to profit sometime during 2003," it said.
But, despite the $3bn rights proceeds, analysts continue to question Ericsson's financial strength, saying the funds will be swallowed by debt repayment, restructuring charges, and vendor financing commitments. They believe the company could be forced to consider a new share issue or asset sales next year, if the market situation does not improve.
Analysts expect Ericsson to make a SKr24.5bn loss this year. <<
- Eric -
