Ericsson posts deep 3Q loss in mobile systems unit

Ericsson’s mobile systems unit, from which it derives about 80% of its sales, accounted for a $548.7 million pretax loss during third quarter 2001, significantly more than analysts' expectations of $425.5 million. The company’s sales also fell short, coming in at $5.16 billion, slightly lower than the market consensus of $5.6 billion. Ericsson said it does not expect the market for mobile networks to improve next year—-for 2002, the company expects sales to be flat to down 10%—-but maintained that it plans to remain a leader in the space. “Not only are we keeping up our sales during this difficult market situation, but we are expanding our position as a leader in mobile network systems,” said Kurt Hellstrom, president and CEO of Ericsson. Hellstrom estimated that Ericsson has 40% of the UMTS market share in terms of projected sales and that it is the only supplier with equipment for the three major third-generation standards: wideband CDMA, cdma2000 and EDGE. “We have been impacted by market slowdown, but have held up well compared to our peers. No one performs how we do in terms of mobile systems and we expect solid positioning for the coming years,” he said. Ericsson said its network sales in the fourth quarter would dip 10% from the same quarter last year. The networks business in the third quarter had a 1% operating margin on sales of $4.06 million and a positive cash flow of $113.4 million. The company said it managed to cut losses slightly in its mobile phone unit, which recently merged with Sony’s handset division. Ericsson’s handset division reported sales of $785 million against expectations of $756.5 million, and an operating loss of $398 million, an improvement over the $435 million loss posted in the second quarter. Ericsson predicted global handset sales this year would reach 400 million units, while sales in the fourth quarter would hit $5.2 billion, excluding the parts of the operation shifted to the mobile phone joint venture with Sony. In an effort to control costs, Ericsson has introduced an efficiency program that calls for about 22,000 job cuts, or one fifth of the company’s work force. Hellstrom said the company is ahead of schedule with the program, and expects it to help the company realize savings of $7 billion in the next year. In a separate statement, Ericsson announced that Chairman Lars Ramqvist would step down at the company’s next general shareholders meeting in March 2002. Michael Treschow, CEO of appliance maker Electrolux, will replace him. Ramqvist’s resignation comes on the heels of criticism regarding Ericsson management’s reaction to the current market performance for mobile communications equipment.