Ericsson profits slump 71 percent in 3rd quarter as financial crisis hits wireless market

Ericsson 3Q profits drop 71 percent

STOCKHOLM — Wireless equipment maker LM Ericsson AB on Thursday said profits tumbled 71 percent in the third quarter, worse than markets expected, as cash-strapped mobile operators cut spending on their networks.

The world’s leading supplier of broadband networks said net profit in the July-September period was 810 million kronor ($117.6 million), down from 2.84 billion in the same three months last year.

Sales fell by 5.6 percent to 46.4 billion kronor from 49.2 billion kronor in the third quarter of 2008.

The results were lower than analysts had forecast in a SIX Estimates poll cited by financial newspaper Dagens Industri. Shares in Ericsson fell by 8 percent to 67.80 kronor ($9.85) in early trading at the Stockholm stock exchange.

Stockholm-based Ericsson, which has previously seen only limited effects of the global recession, said the network market is now being hurt by the crisis. The downturn in investments has coincided with a drop in GSM sales, as telecommunication operators shift their focus from voice telephony to mobile broadband, Ericsson said.

“Sales of network equipment declined due to lower demand in the current tougher market environment,” outgoing Ericsson chief executive Carl-Henric Svanberg said in a statement. “The economic climate affects the global mobile infrastructure market and the credit environment is still tight in several emerging markets.”

However, he added that China, India, the U.S. and Japan showed good development and the long-term outlook for the industry remains solid.

Greger Johansson, an analyst at research firm Redeye, said the overall result was much worse than expected.

“It is primarily sales that are lower than expected,” he said. “This shows the downturn in the economy is now affecting Ericsson as well, mainly in Europe, Africa and maybe Latin America.”

Johansson added Ericsson’s sales are also held back by a negative effect from currency exchange rates.

Ericsson’s handset arm Sony Ericsson — a joint venture with Japan’s Sony Corp. — last week said its losses continued to widen in the third quarter, to euro164 million. Chip maker ST Ericsson, another joint venture, also weighed on the parent company’s results with a loss of $112 million.

Ericsson said restructuring charges, excluding joint ventures, amounted to 2.7 billion kronor in the quarter aimed at generating 10 billion kronor in savings from the second half of 2010.

“Our cost reduction activities are running ahead of plan with further opportunities for efficiency improvements and savings,” Svanberg said.

With 77,000 employees worldwide, Ericsson is one of Sweden’s biggest companies and has long been a key global supplier of fixed and mobile phone networks. It is increasingly focusing on providing services, like managing the networks of operators.

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On the Net: www.ericsson.com