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Ericsson Rallies on Overhaul

It posts a wider loss, predicts continued industry weakness and sets 7,000 job cuts.
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Shares of wireless infrastructure giant

Ericsson

(ERICY)

took off in European and U.S. premarket trading Tuesday as the company outlined an aggressive restructuring aimed at bringing its cost structure into line with chronic industry weakness.

The Stockholm company also said its first-quarter loss widened to 4.31 billion kronor, or just over a half-billion dollars, from 2.97 billion kronor last year. Sales plunged 30%, both sequentially and year-over-year, to 25.86 billion kronor.

Investors focused on the restructuring and bid the shares up $1.88, or 25%, to $9.33 on the Nasdaq.

The one bright spot in the first-quarter report reflected the company's already frantic efforts to cut expenses: Adjusted gross margin rose to 34.1% from 31.7%, reflecting lower component costs, better capacity utilization and other cost cuts. Ericsson employed a total of 60,940 people at the end of the first quarter, down from 82,012 last year.

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The company said it will cut another 7,000 jobs and target a total headcount of 47,000 at year end. Previously it had intended to cut overall employment to 54,000.

"We remain determined to return to profit during 2003 excluding additional charges for the further restructuring announced today," CEO Carl-Henric Svanberg said in a release. "Although first quarter sales are likely to be the low point this year, I want us to be able to generate profit even if sales remain at current levels." The new initiatives will lop another 5 billion kronor out of costs, and 8 billion from cost of sales. Overall, the measures will require an additional 11 billion kronor restructuring charge.

The steps are necessary in a macroeconomic context that is "more uncertain with weaker short-term demand," Ericsson said, predicting industrywide sales of wireless infrastructure will fall more than 10% this year.

Breaking down the first quarter, Ericsson said its flagship network-equipment segment had sales of 24 billion kronor, down 28% from a year ago, reflecting a 31% decline in mobile systems networks. Its cell-phone venture with

Sony

(SNE) - Get Report

shipped 5.4 million units in the period, down 7% from a year ago.