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Ericsson Back in the Black

Light Reading
LR Mobile News Analysis
Light Reading
10/30/2003

Swedish vendor LM Ericsson (Nasdaq: ERICY) has finally waved goodbye to eleven consecutive quarters in the red, returning to profit today with the declaration that the network infrastructure market is on the road to recovery (see Ericsson Reports on Q3).

The company has beaten expectations with a SEK1 billion (US$130 million) pre-tax profit in its third-quarter results, adjusted for restructuring charges -- double the market consensus and reversing a loss of SEK3.6 billion ($469 million) a year ago.

Revenues defied the seasonally weak third-quarter period, improving 1.4 percent quarter-on-quarter to SEK28 billion ($3.64 billion).

“We have reached profitability -- an important milestone,” declared CEO Carl Henric-Svanberg in a conference call with analysts this morning.

Henric-Svanberg also echoed rival vendor belief that the worst of the downturn is now over (see Nokia Sees Network Boost). “The industry is recovering. The very dramatic downturn we have seen over the last couple of years we believe is over. We are ready for an industry change.”

Despite reiterating a previous statement that demand could decline this year by more than 10 percent “in US dollars” compared with 2002, Ericsson expects the mobile systems market for 2004 to be “in line” with this year’s performance.

Such a forecast is welcomed by financial analysts. “This may reassure those investors who had feared that the market may continue to decline in coming years, and provides some support to our current forecast for Ericsson’s 2004 revenues to grow by 2.6 percent,” notes Stuart Jeffrey of Lehman Brothers.

The turnaround ends a miserable three years of massive restructuring and gloomy financials for the vendor (see Ericsson Rebuilds Exec Team and Ericsson Spirals Downward).

The company has cut its workforce by more than half since the start of 2001, from 107,000 down to 53,400 at the end of last month. It is aiming for a headcount of 47,000 by the end of this year.

Ericsson shares defied the business uptick, falling 0.6 percent to SEK15.5 ($2.02) per share at time of press.

— Justin Springham, Senior Editor, Europe, Unstrung

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