Ericsson will take time to bounce back – Svanberg

The chief executive of Swedish telecom giant Ericsson, Carl-Henric Svanberg, warned on Wednesday that the company would not bounce back immediately from a drop in operating performance in the first quarter.

On the Stockholm stock exchange, shares in the company closed down 4.62 percent at 24.80 Swedish kronor.

Speaking at the company’s Capital Markets Day in New York, which was broadcast on the Ericsson website, Svanberg said: “Don’t expect much difference in Q2 (the second quarter) from Q1 (the first quarter)”.

At the end of April, Ericsson announced that its operating margin in the first quarter had dropped 4.0 percentage points compared with the equivalent figure for 2005 to 16.9 percent, significantly below expectations.

Shares in the company had closed down 7.0 percent after the news.

Analysts said at the time that the fall in the margins was a result of an increase in sales of low-margin services, rather than the more profitable network equipment of the company.

Margins were also hurt by the cost of integrating British company Marconi, which Ericsson acquired last year for £1.2 billion (16.3 billion kronor).

Svanberg said on Wednesday that the costs of restructuring Marconi would be 2.0 billion kronor, but that costs savings of the same amount would be realised by the end of the year.

Sales of Marconi equipment have been better than expected since the takeover, said Svanberg, adding that contracts had been won from TIM of Italy, Telefonica of Spain, Vodafone of Britain and France Telecom.