Shortfall Smashes Ericsson

Updated from 7:40 a.m.

Ericsson (ERIC Quote) plunged 24% in early trading after the Stockholm-based telecom-gear company posted weak third-quarter numbers.

Ericsson cited a shortfall in mobile network upgrades that hit margins. Shares dropped $9.80 to $30.13 in New York after sliding 25% in London.

Net income fell 36% from a year ago to 4 billion Swedish kronor ($622 million), while revenue rose 6% from a year ago to 43.5 billion kronor ($6.78 billion). Analysts surveyed by Thomson Financial were looking for a modest profit gain on sales of $6.92 billion.

Gross margin fell to 35.6% from 38.2% a year ago, as Ericsson cited an unfavorable business mix consisting of a high proportion of new network rollouts and lower software sales. In addition to the good growth in network rollout, sales of transmission systems, with a lower margin, showed strong growth, also hitting gross margins.

The news comes as Ericsson's chief rivals in the market for wireless infrastructure gear, Nortel (NT Quote) and Alcatel-Lucent (ALU Quote), continue to struggle as well. Lucent chief Pat Russo is expected to present her board with a plan by month-end to turn that Paris-based manufacturer around.

"The effect of market dynamics is always a matter of judgment," said Ericsson chief Carl-Henric Svanberg. "This quarter we have underestimated the effects."

Alcatel and Nortel each fell 3% in early trading as the market dropped for the second day in a row.