While Ericsson AB’s third-quarter net income fell, rival Nokia posted a 38-percent jump in third-quarter net profit to $687 million and expects full sales growth of 40 percent.
Ericsson’s net income in the third quarter was less than expected, however, slipping to $319 million from $380 million the previous year. For the first nine months of the year, the Swedish company’s net income fell 30 percent to $713 million from $1 billion in 1998. Sales from January to September increased 13 percent, with a 14-percent increase in the third quarter.
Ericsson said it saw strong improvement in the third quarter because of an increase in income and a reduction in customer financing, including renegotiating all of its existing financing arrangements with customers.
“There was a strong increase in operating expenses,” said Kurt Hellstr”m, president of Ericsson. “Even with the improvement in the third quarter, we have not reached a level that we see as satisfactory … We’re determined to have our performance back on track by the end of this year, and we are positioned for strong growth next year.”
Hellstr”m and Chairman and Chief Executive Officer Lars Ramqvist, who replaced ousted Sven-Christer Nilsson in July, have been working to rebound Ericsson from a lagging financial performance in recent months by accelerating its restructuring plan.
Hellstr”m now expects to eliminate 16,000 positions-6,000 more than originally announced in December. And the company expects to realize cost savings of about $455 million annually from 2001.
“We expect to see revenue growth in 1999 in the range of 12 to 15 percent, higher than our previous guidance of 10 percent,” said Hellstr”m. “Our new target is based on the strong performance of our systems business, the ramp up of new phones and the resurgence of the Chinese market. Our order development during the third quarter makes me confident.”
Ericsson’s mobile-phone business, the area of primary concern for analysts, recorded a decrease in sales and a loss during the quarter, said Hellstr”m. The new higher margin products like the T28 had little effect on sales, he said. Sales for the full year will be lower because of lower sales in handsets.
“Unfortunately, the ramp up of production was not fast enough for us to meet the market demands so far,” said Ramqvist. “An improvement in production and capacity is under way and will enable us to meet our objectives for the fourth quarter and next year.”
Nokia, the world’s leading handset manufacturer, said operating profit in the third quarter from handsets increased 61 percent to $804 million from about $500 million the previous year. Nokia’s total net sales increased by 49 percent to a record $5.4 billion in the third quarter. Nokia recorded positive net cash flow in the first nine months of $2.4 billion.
“The very strong sales growth reflects our increased market share and the further consolidation of our No. 1 market position in mobile handsets,” said Nokia Chairman and CEO Jorma Ollila. “We have a solid base to meet the demands of the mobile information society and our ambition to continue to grow faster than the market … Based on the very strong third quarter, we feel confident that our full-year 1999 sales growth will exceed 40 percent.”
