One day after
year-end profit report
ignited optimism among mobile-phone investors,
looks likely to extinguish it.
The Swedish electronics giant reported a wider-than-expected loss Friday morning and warned that red ink would continue to flow through the current quarter. The news sparked a 7% selloff in Ericsson's shares in premarket trading on Instinet, and knocked 3% off Nokia.
Ericsson said its pretax loss was 0.44 Swedish kronor a share in the fourth quarter, wider than analysts' 0.38 kronor forecast. Sales were slightly higher than expected at 58.5 billion kronor, down 15% from a year ago but up 25% sequentially. Cash flow before financing activities was 16.5 billion kronor in the quarter.
For the current first quarter, Ericsson is predicting a pretax loss of about 5 billion kronor; analysts were predicting a loss of 2 billion kronor.
The company's network infrastructure business continued to weigh down its results. "With the market deterioration accelerating, our efforts to improve profitability in this business have not been sufficient to offset the dramatic drop in sales. We are pursuing different solutions including further restructuring on an ongoing basis," the company said in a press release. Because of weakness in the unit, Ericsson said its fourth-quarter gross margins declined.
The company stuck to a prior prediction that sales in its mobile infrastructure segment would be in line with those of the broader market's, which it said would be flat to down 10% in 2002. The company also held to its 5% operating margin forecast for the current year.
Nokia also predicted a rough first quarter, saying sales would fall 6%-10% in the period before recovering as 2002 progressed. Ericsson predicted an "operating loss in the first quarter with results improving over the year."
Ericsson sold about 390 million mobile phones in 2001, about 10 million fewer than it predicted, and said it expects 10% unit growth in 2002. Total mobile subscribers were 940 million to 950 million at the end of 2001; the company expects to add 200 million subscribers in 2002.
Ericsson, which has been struggling to cut costs as its revenue shrinks, said it cut 4,700 workers in the quarter, bringing its total reductions to 10,600.