Ericsson Surges After Quarterly Report - TheStreet

Ericsson Surges After Quarterly Report

The company's shares are up more than 20% after sales slide, but the loss remains flat.
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Updated from 8:02 a.m. EDT

Ericsson

(ERICY)

, the Swedish wireless networking company, said its second-quarter sales declined, but the loss was essentially unchanged thanks to its bid to control costs.

Following the report, shares of Ericsson rose $2.27, or 21%, to $13.06 in Instinet premarket trading.

Ericsson said Friday that sales in the second quarter fell to 27.6 billion Swedish kronor ($3.34 billion) from 38.5 billion a year ago, a decline of 28%. Compared with the first quarter, sales rose 7%.

The company lost 2.7 billion kronor (about $327 million) in the second quarter, flat with a year ago.

One of the areas where Ericsson has worked to trim costs has been in the size of its labor force. The company had 57,644 workers at the end of the second quarter, down from 76,221 at this time last year.

"We remain determined to return to profit during 2003," Ericsson said in a press release. "Over eight quarters we have more than halved our operating expenses and are approaching our earlier announced cost targets. We are encouraged by a third quarter of positive cash flow and a strengthened financial position. But we are not satisfied."

Sales for the third quarter are expected to be flat or slightly down on a sequential basis, Ericsson said.

Cash flow before financing activities was positive for the third consecutive quarter at 5.1 billion kronor, with major contributions from reductions in working capital and customer financing.

Orders booked grew 5% sequentially. A 15% increase in mobile networks' orders was partially offset by lower orders in other areas. Orders declined 20% from a year ago, about half of which was attributable to foreign-exchange rates, mainly the weaker dollar.

Ericsson said the number of mobile subscribers continues to grow on pace to exceed 1.5 billion subscribers within three years. The company expects between 165 million and 180 million net additions this year with around 44 million during the second quarter. In addition, traffic should grow as operators promote mobile Internet and mobile multimedia services, Ericsson said.

However, the company believes the market will remain weak in the near term. Operators continue to reduce debt and are maintaining a cautious view on capital expenditures.

Ericsson maintained its view that the global mobile systems market, measured in dollars, could decline by more than 10% this year from 2002. The company also said it expects to hold its share of the mobile systems and professional services markets in 2003.

Due to foreign-exchange effects, Ericsson said its reported sales in Swedish kronor will decline more than the overall market, which is estimated in dollars.