Reuters
Ericsson Q4 loss seen smaller, networks in black
Tuesday January 28, 6:56 am ET
By Jan Strupczewski
STOCKHOLM, Jan 28 (Reuters) - Swedish telecoms equipment maker Ericsson (Stockholm:ERICb.ST - News) is expected to report its ninth straight quarterly loss on Monday, but analysts forecast the key mobile networks unit returned to profit on end-of-year buying.
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The company is seen posting a 1.5 billion crown ($175.9 million) pre-tax loss for the last quarter of 2002, almost a third of its losses in the third quarter, according to a Reuters poll. Year on year, the profit figure would narrow 70 percent, helped by cost-cutting.
Group sales and orders are also seen rising strongly against the seasonally weak third quarter to almost 38 billion and 27 billion crowns respectively. On the year, sales and orders would be down roughly a third.
Ericsson, the world's biggest producer of mobile networks, will report fourth-quarter results following relatively strong numbers from rivals Nokia (NOK1V.HE), Motorola (NYSE:MOT - News), Siemens (XETRA:SIEGn.DE - News), Samsung (KSE:00830.KS - News) and Alcatel (Paris:CGEP.PA - News).
Many of these companies saw a strong close to a weak year as operators spent the last dollars of their budgets. But this has not made telecoms equipment makers confident about the future because many telecoms carriers anticipate another slow year.
Operators keep cutting investment because of their high debt and because consumers have not snapped up the colour-screen camera phones that were supposed to fuel the next growth phase in mobile communications.
Ericsson's forecast for 2003 will be key to establish how much more the mobile phone infrastructure industry can shrink.
"The focus will be on quarterly revenue growth, how's cost cutting going, whether the systems unit is profitable and the outlook," said Angela Dean, analyst at Morgan Stanley in London.
Ericsson has said it expects another spending decline of up to 10 percent in its key market for wireless networks. Its sales of mobile networks have already fallen almost 40 percent since they peaked in 2000.
The crucial network systems division, which generates most of the company's sales, is seen reporting an operating profit of 652 million crowns after four quarters in the red. After a hesitant start Ericsson has cut costs sharply in this unit.
But after the better year-end, Ericsson is likely to fall back to a seasonally weak first quarter. The systems unit will then dip into the red before a rebound later in the year.
"The question is how much can the cost savings begin to come through in the first quarter to offset the lower revenue. So the fourth quarter is a relatively brief respite," said Mark Davies Jones, analyst at SSSB in London.
PROBLEMS AT HANDSETS, FIXED-LINE
But even if the network unit returned to the black late last year, other Ericsson units will still drag down group results. "The problem is that any recovery in the systems business is offset by the continuing problems in handsets, the fixed-line business and other operations, which really depress margins," Davies said.
Ericsson's main rivals in the mobile network's business, Nokia and Motorola, forecast the market will fall between five and 10 percent and six and 12 percent this year respectively.
North American competitors Lucent (NYSE:LU - News) and Nortel Networks (Toronto:NT.TO - News) both see demand coming closer to stability, but Nortel expects sales in the first quarter lower than in the fourth.
All players have adapted to the new reality by cutting costs. France's Alcatel and Germany's Siemens' networks unit expect this will result in profits in 2003.
Ericsson aims to reduce its workforce to below 60,000 at the end of 2003 from 107,000 at the start of 2001, when it first reported a pre-tax loss. It aims to cut costs to reach a break-even point on annual sales of 120 billion crowns.
The market consensus sees the firm posting sales of 135 billion crowns in 2003, allowing it to return to the black.
Ericsson said in late November that the market in 2003 could be flat to 10 percent down, but did not specify if its own performance would be better, worse or in-line. Its mobile network sales are likely to have fallen by more than 20 percent last year, more than others in the sector.
Investors will also look how quickly the company is burning through the 30 billion crowns it collected in a rights issue in September in preparation for prolonged market weakness. Ericsson is expected to pump another $100 to $200 million in its loss-making handset venture with Japan's Sony Corp (Tokyo:6758.T - News).
