The world’s largest supplier of wireless infrastructure equipment, LM Ericsson Telefon AB, has taken the shine off strong third quarter results showing a sharp rise in profits, with the news that it expects slower growth going forward.
For the third quarter ending September 30, the Swedish telecoms equipment maker posted net income of SEK 4.76 billion ($662 million), compared with a net loss of SEK 3.94 billion ($548 million) in the year ago quarter. The stunning turnaround has partly been due to cost cutting (it has cut 58,000 jobs since 2000), and the fact that mobile operators are catching up with delayed investments.
Sales for the third quarter were SEK 31.83 billion ($4.42 billion), up 14% from SEK 28.03 billion ($3.89 billion), but slightly down from its second quarter revenues. Ericsson blamed the cooling off of capital spending by Chinese firms for a 13% sequential decline, despite the fact that orders rose 3% from the same quarter in 2003. The mammoth $41 billion acquisition of AT&T Wireless Service Inc by fellow US mobile operator Cingular Wireless LLC is thought likely to have an impact on demand.
Yet overall, the results continue to reinforce the perception that the recovery in the telecoms equipment sector is well underway. According to Ericsson, mobile phone operators including TeliaSonera AB and Telefonica Moviles SA have increased orders to catch up after three years of slashed spending.
It is hard to imagine that at one stage the whole future of Stockholm, Sweden-based Ericsson was in doubt after it racked up huge losses during the downturn. This forced it to more than halve its workforce from 107,000 to just 47,000 people by April this year.
Despite the healthy results however, shares in the company dived after it warned that customer spending was likely to slow in the coming year. We expect the global market for mobile systems to show slight growth in 2005, Ericsson said.
It seems it was Ericsson’s use of the word slight that has caused a nervous market to send its shares sharply downwards.