Ericsson Shares Slip on Earnings, Outlook

Ericsson reported a lower-than-expected quarterly profit Friday, sending its shares 3.5 percent lower, while company CEO Carl-Henric Svanberg told "Power Lunch Europe" the outlook for the year ahead is largely flat.

"We are looking at a flattish market for 2008 and that is what we’re going to adjust for," Svanberg told CNBC Europe.

The world's biggest mobile network maker also said it would axe costs of about 4 billion Swedish crowns ($630.3 million) a year to adapt to little or no growth in mobile infrastructure.

"We have steadily improved our leading position and market share in an increasingly challenging market," Ericsson Chief Executive Carl-Henric Svanberg said in a statement.

"The market growth however slowed during last year and for 2008 we find it prudent to plan for a flattish mobile infrastructure market."

Svanberg, in a news conference, declined to talk about the first-quarter outlook directly and analysts said this was adding to pressure on the stock.

"It's a reasonable set of results given the lowered expectations that they've set," Richard Windsor, communications equipment Analyst from Nomura, told CNBC.

The Swedish firm, which shed thousands of jobs and recorded huge losses as the IT bubble burst early this decade, said it planned to cut about 1,000 jobs in its home market and Svanberg told local agency TT some 4,000 jobs would go globally.

It said the full effect of the savings would come in 2009.

As of December, Ericsson had 74,000 employees, just under 20,000 of whom were employed at its operations in Sweden.

The cuts mark the first major job losses in Sweden in at least a couple of years. The economy has been booming but is widely expected to slow down as global conditions worsen.

Ericsson, whose shares have lost nearly half their value since a collapse in earnings announced in mid-October, said its operating profit slid to 7.6 billion Swedish crowns ($1.2 billion) in the fourth quarter from 12.2 billion a year earlier. Forecasts were for a 7.94 billion crown profit.

Multimedia Weakness

The firm said its operating margin fell to 14 percent, below forecasts for 14.7 percent and well short of the 22.5 percent reported a year earlier.

The erosion of earnings in recent quarters has been mainly due to the firm making less money from higher-margin network upgrades and more from the less profitable network rollouts.

But analysts, who said a downbeat report from Ericsson had been expected, noted the firm's networks business had performed in line or slightly stronger than expected and instead zeroed in on one particular area where Ericsson looked unexpectedly soft -- the company's multimedia division.

"In the P&L there's one weak spot and that's the multimedia division with much bigger losses than the consensus was looking for," said Thomas Langer, analyst at WestLB. "Everybody was looking for a small operating profit."

Multimedia, a division created as part of a reorganisation designed to ensure future long-term growth, lost 439 million crowns in the quarter versus a year-ago profit of 527 million.

Overall, sales of 54.5 million crowns were slightly better than forecasts of 53.8 billion. Ericsson had announced in October it saw sales in a 53 billion to 60 billion range, but later said it saw them coming in at the lower end of that range.

Battling it Out

Ericsson has 41.1 percent of its main market, according to latest figures from research firm Dell'Oro. But Nokia Siemens Networks has been making gains, capturing 35.5 percent as of the third quarter, the research firm says.

Ericsson's strategy of gaining market share has been questioned since the third-quarter debacle, although it said on Friday its ambition was still to increase market share.

Svanberg pointed to China as a bright spot. "We even grew our market share slightly in China this year, in a year where Chinese vendors are taking market share and all other international vendors have lost market share."

But the market, for now, appears more focused on Ericsson's margins. Svanberg said he had nothing to add to a comment made in November, when he said the first quarter could be the low point in terms of margins.

Analysts said the lack of explicit short-term guidance was pressuring Ericsson shares. "When there's so much insecurity, a clear negative message is better than no message at all," said Evli analyst Anders Berg.

For the local economy, the Ericsson report also made for downbeat reading. Tord Strannefors, head of forecasting for Sweden's AMS labour board, said: "We have seen small job cuts the last couple of years. We have been spared job cuts of this size due to strong export trends."

- Reuters contributed to this report.