re: Ericsson Q3
Ouch! Ouch! Ouch!
>> Grim Year Gets Even Worse for Ericsson
18/10/02
Martyn Warwick
CommsDay
Just a day after Finland’s Nokia reported that it had managed to triple its profits, its southern neighbour and rival, the battered and beleaguered Ericsson of Sweden, the world’s biggest manufacturer of mobile telecoms equipment, revealed continuing and widening losses and again revised its sales forecasts even further downwards.
The latest figures indicate that the company expects sales of its mobile telecoms systems to be down by at least 20% on last year. In July, Ericsson had announced a revised sales forecast that said sales would fall by 15%.
The company’s Q3 results show that it lost 3.9 billion Swedish kronor in the three months to the end of September, far and away below analyst’s expectations. Sales for the quarter were 33.5 billion kronor. During the same period last year they were 54.5 billion kronor. To make matters worse, the company also had to account for a one-off charge of 4.2 billion kronor charge related to its redundancy programme.
In a masterly example of gloomy Scandinavian prognostication, Ericsson’s CEO, Kurt Hellstrom, said, “ In the near-term, the outlook continues to be uncertain.”
For the industry in general that’s true; for the company, it’s a fjord-sized understatement.
Ericsson is in deep trouble. It has been conserving cash and slashing jobs, (its workforce by the end of next year will be under 60,000. Last year that number was 107,000) but is struggling to stay abreast of technology trends and to keep up with rivals such as Nokia and Samsung.
The company also warned that the mobile network equipment market faces “significantly more” erosion than the 20% originally predicted for 2002. Indeed, the only semi- bright spot (if it can even be described as such) in the all-pervading darkness is that Ericsson believes that the market will not decline as much next year as it has this and will, sometime, begin to stabilise at a lower level (than what? – one might ask).
Ericsson shares fell back by 9.9% as the bad news sank in.
Urban Ekelund, a leading analyst with Redeye and an expert on Scandinavian and Nordic telecoms commented, “Almost everything in the [Ericsson] report is worse than expected, especially orders. The only positive aspect is that cost cutting is better than expected.”
Another analyst, Helena Nordman-Knutson with the Ohman brokerage in Stockholm said, “The orders are a nightmare. We expected them to be bad, but not this bad, Their sales are in line with expectations but the fact is that there’s not much of a future with these levels of orders.”
And the order situation is critical. They are down a massive 46% year-on-year in the quarter. Ericsson says the main cause of the huge drop has been a series of cancellations for 3G mobile technology and handsets, mainly on the part of Quam and the troubled German mobile operator MobilCom.
Ericsson went to the market only last month and managed to raise US$3.2 billion in a rights issue. That route to shoring up its balance sheet will not be available again any time in the near future and it now seems that Ericsson’s only option is to continue to cut costs, staff and to sell off non-core assets (of which precious few are left).
In essence, the Ericsson’s future is in the hands of its customers. If the operators don’t start investing in new equipment sometime during the next year to 18 months, we could actually see one of the worlds biggest and most important telecoms sector companies go down the tubes. We all want the upturn; Ericsson needs it more than many of its competitors put together. <<
- Eric -
