Intimations of a mobile phone recovery in reports last week from
were a little harder to see Monday morning after
uncorked a brutal first-quarter report and outlook that sent its shares toward penny stock-land.
The Swedish telecommunications equipment giant warned it will post its second consecutive annual loss, cut 17,000 of its 82,000 workers, and ask its shareholders to subscribe to a rights offering in which it hopes to raise almost $3 billion as it searches for signs of improvement in the telecommunications infrastructure market.
The announcement, which comes on the heels of a similarly grim assessment from handset giant
last week, sent Ericsson's shares down 91 cents, or 26%, to $2.63 in pre-market U.S. trading on Instinet -- a 5-year low and its biggest one-day point drop in more than a decade. Other stocks hit by the warning included
, down about 2%;
, down 6%; Nokia, down another 5%; and Motorola, down 4%.
"What we see is a prolonged, lower-demand situation," Ericsson Chief Executive Kurt Hellstroem said. "We don't see any uptick in the near future. We haven't seen any signs that it is getting worse. But the issue is that we don't really see a turnaround."
Ericsson posted a first-quarter loss of 3.7 billion kronor, or about $290 million, after reporting a profit in the year-earlier period, and withdrew its forecast of a second half rebound in capital spending by telecommunications companies. As a result, it pushed back a planned return to profitability to 2003, saying it now expects wireless-industry sales to be down more than 10% this year instead of flat to down 10%.
Ericsson said it had sales of 36.97 billion kronor for the first quarter, down 34% from 55.93 billion kronor from a year earlier. On a pretax basis, Ericsson had a loss of 5.41 billion kronor for the first quarter, compared with a pretax loss of 4.89 billion kronor in the year-earlier quarter. The company had forecast a pretax loss of around five billion kronor, with sales of around 40 billion kronor.
"An improvement in the telecommunications equipment market during the second half of this year was generally anticipated," the company said. "However, as many operators have recently announced reduced investment plans, we now believe that market conditions will remain weak well into next year."
The company will cut 7,000 jobs this year and as many as 10,000 more next year in an effort to cut a total of 20 billion kronor from its expense line. It sees restructuring charges of more than 10 billion kronor over the two years.
Ericsson set a special shareholders meeting for June 6 to approve the rights offering, which it expects to complete by the end of the third quarter. "With the proposed rights offering, we will have the financial strength to fully leverage our strong competitive advantage. At the same time, we will also have a robust financial position with increased security if poor market conditions continue or deteriorate further."