Ericsson's Bellwether Days May Be Over - TheStreet

Updated from 8:36 a.m.

LM Ericsson's

(ERICY)

days as an industry barometer may be all but over, its latest earnings show.

Ericsson said its fourth-quarter loss ballooned to 8.3 billion kronor ($969 million), while sales fell 37% to 36.7 billion kronor, compared with a net loss of 3.5 billion kronor and sales of 58.5 billion kronor in the same period last year.

While traders in years past would scour Ericsson's statements for industry trends, this earnings report created nary a ripple in the world of telecommunications stocks. That's because the company now derives more than 80% of its revenue from the struggling wireless-gear sector, compared with Nokia's approximate 20% or Motorola's 17% exposure to the category.

Indeed, after linking up with

Sony

(SNE) - Get Report

to form a handset joint venture, the company's focus has veered away from handsets. It now dominates the market for wireless-infrastructure equipment with a 30%-plus market share.

Ericsson essentially confirmed Nokia's recent projections of a 10% decline in wireless-infrastructure equipment sales in 2003, but only Ericsson's stock suffered from the news.

Ericsson's American Depositary Receipts closed down 10.2% to $7.30, while shares of competing network-gear providers moved into positive territory.

Nortel

(NT)

gained 1.7% to $2.41, while

Lucent

(LU)

added 1.1% to $1.88.

Nokia

(NOK) - Get Report

inched up 0.4% to $14.45, and

Motorola

(MOT)

gained 2.4% to $8.17.

"Ericsson is the most exposed of any of the other companies

in the wireless sector to the problems they're facing right now," said Gerard Klauer Mattison telecom equipment analyst John Bucher. "It's much more of a pure play in wireless infrastructure. These guys feel it worse than anyone else."

James Faucette, an analyst with Pacific Crest Securities, said, "It's

no longer a barometer for the industry. Ericsson used to be the No. 2 handset maker in the world, with 20% market share. Now,

the joint venture has less than 5%. In 2003, you're going to have a terrible year for

wireless infrastructure, whereas for the handset side it'll be a good year."

Handset sales are projected to grow at least 10% this year, according to Nokia and Motorola estimates. In the face of slowing new-subscriber growth, handset makers are hoping current consumers will begin to replace aging phones with new models built with color screens and cameras. At the same time, the business of selling wireless switches and transmitters continues to suffer from spending reductions from nearly every wireless operator across the globe. Most recently,

AT&T Wireless

slashed its new-equipment spending by nearly a third to about $3 billion for 2003.

Ericsson predicted that first-quarter sales would be 30% lower than its fourth-quarter sales. The company expects to reach break-even on continued heavy cost-cutting this year.

To be sure, some industry watchers say the reason sector shares didn't fall Monday may have been because much of the bad news on telecom equipment already has been baked into stock prices. Nokia, for instance, has seen its shares tumble about 3% since it declared another abysmal year for its equipment business on Jan. 23. Likewise, Motorola shares have been clipped 7.4% since it announced earnings on Jan. 21. Gerard Klauer Mattison's Bucher said the companies have "already taken their licks."

Peter Friedland, a wireless analyst at WR Hambrecht, agrees. He said Nokia stock has already "taken a beating" over the past month.