Sluggish network sales weigh on Ericsson

L.M. Ericsson warned yesterday that third-quarter sales would total about $6.8 billion, with operating profit of $875 million, sending its shares down almost one-third.
CEO Carl-Henric Svanberg said the company had “underestimated” the “market dynamics,” which included fewer network upgrades and expansions by its customers.
The sales and earnings figures were well below the company’s previous estimates and appear to have caught Wall Street off-guard. The company reports its quarterly figures on Oct. 25.
Ericsson’s troubles also rubbed off on its rivals. The news also dampened share prices about 5% for Alcatel-Lucent, which said last month that 2007 sales would be under previous expectations, and 1% for Nokia Corp., partner in Nokia Siemens Networks.
Ericsson forecast fourth-quarter sales of between $7.8 billion and $9.4 billion, adding that it expected similar market conditions to prevail in 2008.
One bright spot has inevitably dimmed somewhat: Ericsson’s joint venture with Sony Corp., aka Sony Ericsson Mobile Communications, which last week posted greater than 30% growth in volume shipments of handsets for the third-quarter over the year-ago quarter. SEMC shipped nearly 26 million phones in the quarter, vs. nearly 20 million in the year-ago quarter.
The volume growth, however, came largely from the vendor’s plunge into lower-cost handsets in emerging markets, and sales and earnings have stagnated somewhat over the incredible run the firm has made over the past two years.
Sales for SEMC in the third quarter were $4.4 billion, up incrementally from the year-ago quarter, but down slightly from the second quarter. Net income for the third quarter was $378 million, down about 10% from the year-ago quarter, but up about 18% from the prior quarter.