Ericsson cautions on profit
3Q rises but phone maker cuts forecast for growth, margins; stock crumples
October 20, 2000: 3:47 a.m. ET
LONDON (CNNfn) - AB Ericsson, the world's leading maker of equipment for mobile-phone networks, on Friday lowered its forecast for profitability this year to reflect a deepening loss in its cell-phone handset unit, even as gains elsewhere fueled an 11 percent increase in underlying third-quarter profit.
The Stockholm, Sweden-based company said pretax profit for the three months ended Sep. 30 rose to 4.1 billion Swedish crowns ($408 million) excluding one-time items, from 3.6 billion crowns a year earlier, as rising earnings from network equipment outweighed an increasingly serious loss on consumer products.
Ericsson blamed the handset division's deficit mainly on component shortages caused by a major supplier, and said it is readying an insurance claim to offset the damage it has suffered.
Meantime, it warned of even deeper losses for the unit in the last quarter of 2000, and lowered its prediction for overall revenue growth and profitability this year. The full-year operating margin - a measure that expresses operating profit as a percentage of revenue - would probably now be between 6 percent and 7 percent, and not the 10 percent that Ericsson previously forecast, the company said. It also said annual sales growth was expected to be about 25 percent, having earlier estimated growth would be more than 25 percent.
Ericsson shares fell 12 percent to 132.5 crowns in morning trading in Stockholm. The stock had dropped 7 percent on July 21, when Ericsson reported that the handset division fell to a second-quarter loss.
As part of a four-point plan to restore the consumer products business to profit, Ericsson said it would transfer production of mobile phones from Sweden and the U.S. to Asia, Eastern Europe and Latin America to lower manufacturing costs.
Pretax profit for the year's first nine months tripled to 24.1 billion crowns, better than expected by analysts polled by Reuters. Excluding one-time effects - principally the sale of a clutch of businesses -- pretax profit was 16.8 billion crowns, more than double the result a year earlier. Earnings per share ignoring the non-recurring items doubled to 1.5 crowns from 0.75 crowns.
-- from staff and wire reports
