A lending spree at



has tech watchers pondering the wireless-networking outfit's growth prospects.

The Stockholm-based company reported

narrower-than-expected margins and weaker cash flow Friday. The company said part of the drag on cash came from loans to customers, which jumped by $206 million in the second quarter. Total financing to customers for the first half of the year rose to $631 million.

The spike in lending harks back to the go-go days of the late 1990s, when countless big companies lent money to customers in hopes of buying future growth and then were left holding the bag. Ericsson execs insist there's no danger of that happening this time around, but the rise in customer loans underscores concerns that the wireless-infrastructure business may be entering a turbulent cycle.

While lending customers cash to buy your product is hardly a new practice, industry observers tend to see increases in so-called vendor financing as a sign of possible sales weakness. During the Internet bubble, suppliers' loans became known as "secret sauce" because they seemed like an easy way of enhancing top line performance.

The practice of playing both banker and supplier helped intensify the collapse of the telecom industry around the turn of the century, when the Internet building boom ended. Outfits like








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extended billions of dollars in credit, but were left with little more than broken promises. In some cases, the loans were greater than the value of the underlying equipment.

But Ericsson executives on a conference call with analysts Friday insist it's different this time.

In the late 1990s, "companies needed funding to get started," said an Ericsson executive. "Today there is a cash-generating parent at the back end" of the deal, the executive said, referring to the payback process should collection become an issue.

Vendor financing "will not grow to the levels it once was," the executive said.

But despite Ericsson's 15% sales growth for the second quarter, some investors seem concerned about the company's prospects for the year.

"You have three things working against them: carriers consolidation, slower 3G buildout and margin pressure," says one hedge fund manager who has been short the stock. "They've also got headwinds with the integration of Marconi. I see this stock going to the mid-20s," says the investor.

Ericsson shares were down $1.02, to $30.94 in midday trading Friday.