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Ericsson's steady new millennium slide
Updated from 9:20 a.m. EDT Ericsson ( ERICY) keeps on cutting, and for once investors are applauding. The wireless infrastructure leader reported a wider-than-expected third-quarter loss Friday and projected that the wireless equipment market will contract in 2002. But the stock rose as investors took heart in the naming of a new chairman and cost-cutting progress. For its third quarter, Ericsson missed Wall Street's earnings and revenue expectations by a substantial amount. The company lost 7 cents a share, against a targeted loss of 4 cents, and revenue amounted to $5.1 billion, far short of the $5.77 billion projection. Big-picture guidance wasn't much better: The ailing infrastructure power believes the market for equipment will contract by as much as 10% in 2002, reversing the moderate growth projection it made as recently as Sept. 4. But Ericsson did suggest that, like rival Nokia, it expects a solid fourth quarter. The company noted that it had positive cash flow of $112 million in the third quarter and predicted it would be cash-flow positive for the full year. That would require positive cash flow of $1.15 billion in the fourth quarter, a seasonally strong quarter in handsets. In the fourth quarter, Ericsson expects to deliver around $5.15 billion revenue, with a "somewhat smaller" loss than this quarter's 7 cents a share.
Ericsson clocked $4.03 billion in third-quarter systems sales, off sharply from the second quarter's $4.6 billion. The systems business turned a minuscule $18.7 million profit. Ericsson attributed the weakness to an industrywide spending freeze in Latin America and said GSM systems provided strength, led by its two strongest countries, China and the U.S. Mobile phones continued their slide, with handset revenue falling to $693 million from last quarter's $745 million. The company predicts that 400 million handsets will be sold to worldwide end users in 2001, basically in line with forecasts by competitors Motorola and Nokia. The company hopes to post a positive 5% operating margin for 2002. Ericsson firmly maintains that it has 40% market share among third-generation wireless system vendors, and the company expects to get 10% of its 2002 revenue from 3G equipment sales. "Nobody performs better than we do in mobile systems, in terms of sales and in terms of profitability," CEO Kurt Hellstrom said, countering recent claims by Nokia that it is seizing 3G market share from the market-leader. The company also said it has trimmed its workforce to less than 90,000 workers, from 107,200 in March. Ericsson said it is ahead of its cost-savings schedule. Ericsson also said it plans to name Michael Treschow chairman, replacing Lars Ramqvist. The company's stock, down more than 60% over the last year, added 31 cents to $4.66.