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Ericsson shares up on strong report

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Ericsson shares up on strong report
09:20 CEST+02:00
Despite posting a 28 percent drop in third quarter net profits on Monday, Swedish telecoms giant Ericsson beat expectations, sending its stock price soaring in early trading.

CEO Carl-Henric Svanberg said that Ericsson will continue to save and that the company hasn't so far been affected by the current wave of uncertainly sweeping the global financial uncertainty.

Ericsson reported an operating income of 5.7 billion kronor ($770 million) for the third quarter, up from 5.6 billion kronor from the same period last year.

Results after financial items were up to 6.2 billion kronor compared to 5.6 billion kronor last year.

Turnover climbed to 49.2 billion, up from 43.5 billion the year before.

Nevertheless, Ericsson saw its net profit for the July to September period tumble to 2.8 billion kronor ($379 million) from 4.0 billion 12 months earlier, largely due to a massive ongoing restructuring programme.

The company's sales meanwhile grew 13 percent year-on-year to 49.2 billion kronor, with the numbers growing everywhere except in Western Europe, where they were down six percent from a year earlier.

Following the announcement, Ericsson saw its stock price skyrocket 19.12 percent just minutes after the opening bell to 59.82 kronor a share.

"Our business in the quarter has not been impacted by the financial turmoil. Our customers are generally financially strong," said Svanberg in a statement.

"In addition, networks are loaded and traffic shows strong increase," he said but cautioned that "in the present financial turmoil, it is however hard to predict how operators will act and to what extent consumer telecom spending will be affected."

"We have a positive longer-term view for our industry, however, as we look into 2009, we continue to plan for a flattish market, and we have measures in place also for tougher conditions," he said.

Since 2007, Ericsson has experienced rapid growth in emerging markets with new rollouts but the group has lower margins in these markets due to rising competition and because launches cost more and bring in less money than expansions of existing networks.

Meanwhile, in mature markets such as Western Europe are declining, prompting one of Sweden's biggest industrial groups, which employs almost 20,000 people here, to launch a radical restructuring programme at the end of last year in a bid to improve cash flow and cut expenses by 4.0 billion kronor a year starting in 2009.

“During the quarter, sales grew by 13 percent with strong development in all regions except Western Europe,” said Svanberg in the report.

“We are seeing initial positive effects from our ongoing cost adjustments. Our financial position is strong with healthy net cash and high payment readiness.”

In the third quarter this year, the company said it had spent 1.8 billion kronor on the restructuring, partially explaining its slipping net profits, and had spent 4.6 billion since the beginning of the year.

On a positive note, Ericsson said sales for its main networking business had soared 16 percent during the period after slipping one percent in the previous quarter.

"Build-out of new networks as well as network expansions across all markets except Western Europe continues with particularly strong growth in India, Indonesia, Russia and Brazil," the company said.

Ericsson nonetheless saw its operating margin tick in at 11.5 percent in the third quarter, down 12.9 percent a year earlier.

For the first nine months of the year, its margin stood at 10.3 percent, down from 17.3 percent in the year-ago period.

Despite the difficult financial climate, the company remained optimistic about its long-term growth.

"The need for communication continues to grow and plays a vital role for the development for a prosperous society. Ericsson is well positioned to lead this development," it said

"The demand for broadband is strong," it said, adding "We expect traffic in mobile and fixed networks to increase tenfold in the next five years mainly driven by Internet applications and the introduction of interactive HD-TV."

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