LONDON — Swedish telecomms group Ericsson reported larger than anticipated losses for the fourth quarter and saw its shares dive more than 10 percent Monday (Feb. 3) after stating that profitability at its core mobile network infrastructure business continues to suffer.
The group, which is the world's largest supplier of mobile infrastructure equipment, also gave a weak outlook for the first quarter. It suggested the wireless systems market could decline by up to 10 percent this year, although it said its own operations were beginning to stabilize after the huge restructuring in the unit over the past 18 months.
Kurt Hellstrm, chief executive, said: "We continue to have a reluctant and sometimes irrational capital market and we are worried about the effects of a possible war against Iraq."
Orders and sales in the fourth quarter improved from the previous three months, with the slow rollout of 3G networks taking its toll on both orders and sales at the infrastructure division. Last year, Ericsson said it anticipates sales of 3G gear to account for half of turnover in the division in 2005. It now suggests that figure is more likely to be one third.
However, Hellstrm insisted the company was "planning to return to profit at some point in 2003, by lowering costs and adjusting to the prevailing market conditions."
In the three months ended Dec. 31, pre-tax losses for the whole of Ericsson, adjusted for restructuring costs and capital gains, were 2.2 billion Swedish kronor ($255 million) compared to a $593 million loss in the same period a year earlier. Orders fell 23 percent to $3.57 billion. Despite a sequential improvement, sales were down 37 percent year-on-year at $4.27 billion.
The biggest disappointment was in the mobile systems division, where the company reported an adjusted loss of $34.9 million during the quarter. For the full year the company reported an adjusted pre-tax loss of $1.69 billion.
Commenting on the state of the industry, Hellstrm said: "While we believe the worst of the market decline is behind us, the market remains unpredictable."
He said operators were continuing to let the quality of their networks deteriorate, rather than investing in new systems, leading to an increased number of dropped calls in big cities like London and New York. "There is a serious degradation of quality in many networks," he added.
Last week, Sony Ericsson Mobile Communications AB, Ericsson's mobile telephony joint venture with Sony Corp. , announced it would receive fresh capital investment of 150 million euros ($162 million) from each of its parent companies during the quarter ending March 31, 2003.
Despite the joint venture's publicly stated goal of becoming the world's leading mobile phone maker by 2006, the venture, which is yet to become profitable, has been a disappointment to both of its parent companies. The company has been losing market share to its competitors such as Nokia, Motorola, Samsung and Siemens.
During the fiscal year of 2002, Sony Ericsson posted a loss of 241 million euros after tax.
The loss of jobs is continuing at Ericsson and the compnay said it expects to employ less than 60,000 by the end of 2003. In the fourth quarter of last year, another 7,100 employees left the group, bringing total head count down to 64,600 at the end of the year.
