Growth Talk Lifts Ericsson

The stock jumps 13% on a surprisingly strong sales view for the first quarter.
By Scott Moritz ,

Ericsson

(ERICY)

surged 13% early Friday after investors shrugged off the wireless giant's cautious guidance, focusing instead on its improving margins.

The company posted a small first-quarter profit Friday and forecast "moderate growth" for 2004. That includes a 5% to 10% year-over-year sales gain in the first quarter, execs indicated. In early trading, its shares jumped $3.13 to $26.83.

For its fourth quarter ended Dec. 31, the Stockholm wireless equipment giant posted earnings of 100 million Swedish kronor ($13.6 million) on revenue of 36.2 billion kronor. The quarter showed surprising strength, as many Wall Street analysts had projected a loss for the period.

"The mobile infrastructure market has definitely stabilized, traffic continues to grow and operators are increasing their focus on network quality and capacity," said CEO Carl-Henric Svanberg. "Significant improvements in operating profit, gross margin and cash flow have been achieved through increased efficiency and cost of sales reductions."

Indeed, Ericsson has spent the last few years in a radical restructuring similar to that of big North American gear companies like

Lucent

(LU)

and

Nortel

(NT)

. And like those companies, Ericsson is starting to benefit from an apparent rise in demand for the equipment it makes.

Ericsson's report comes on the heels of a

solid rally Thursday as investors awaited the company's results. And the news comes just a month after a

strong quarter from Ericsson's big Scandinavian rival,

Nokia

(NOK) - Get Report

.

In the telecom gear market, first-quarter sales are typically much weaker than fourth-quarter results due largely to money available in phone companies' budgets. Nokia's strength and wide margins were attributed in part to a so-called budget flush as phone companies used leftover cash to make last-minute purchasing decisions. For both Nokia and Ericsson, a fair portion of the sales in the latest quarter were for an earlier generation of wireless equipment, which is usually produced at a lower cost than cutting-edge gear.

Perhaps most tellingly, Ericsson indicated that it believes the global wireless market has stabilized. "We expect sales for the first quarter to show a sequential decrease due to seasonality but to show moderate growth year-over-year," the company said. "However, we are monitoring the sustainability of this growth trend as some part could be operators catching up on last year's limited investments."

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