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Ericsson confirms fall in profits

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09:08 CEST+02:00
Ericsson, the world's leading mobile networks maker, presented sharply lower third quarter earnings on Thursday in line with last week's profit warning that shocked the market.

Ericsson also announced that its chief financial officer, Karl-Henrik Sundström, was leaving the company with immediate effect, amid fierce criticism in the media that management was not on top of the situation.

The Swedish group reported a net profit of 4.0 billion kronor ($620 million) and an operating profit of 5.6 billion kronor, both down by 36 percent from a year ago.

Sales rose however by six percent to 43.5 billion kronor.

The earnings were already released on October 16, when Ericsson said profits would be sharply lower than expected in the third quarter due to a weakening market that was seen continuing through 2008.

It said investments in mobile network expansions and upgrades, which bring in more money that new rollouts, were slowing down amid rising competition from Asia.

Following the profit warning, Ericsson saw its share value plunge by more than 24 percent, as more than 100 billion kronor ($15 billion) went up in smoke on the Stockholm stock exchange, the biggest loss in a single day in the history of the exchange.

On Thursday, the share price was shedding 1.25 percent at 18.90 kronor in mid-morning trade.

"The sharp decline in profit this quarter is mainly due to weaker sales of mobile network upgrades and expansions combined with high sales of new network buildouts," Ericsson chief executive Carl-Henric Svanberg said in a statement.

Ericsson, like its competitors such as Alcatel-Lucent and Nokia Siemens Networks, are seeing growing competition from Asia, such as China's Huawei, which is pressing margins.

The Swedish group said its operating margin dropped from 21.1 percent in the third quarter last year to 12.9 percent.

Ericsson reiterated however its 2007 growth outlook of four to six percent for its main markets, second-generation GSM and and third-generation WCDMA mobile networks.

"We also continue to believe that the addressable market for professional services will show good growth in 2007," the statement said.

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