Marconi warns of price competition

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MARCONI IS suffering from intensifying price competition in the telecoms equipment market which is eating into margins, its chief executive, Mike Parton, said yesterday.

He said price competition was one of the biggest issues facing the company as rivals battled for market share.

Mr Parton announced results that showed Marconi's third-quarter sales up 5 per cent to pounds 330m from a year ago and a much-reduced operating loss down from pounds 72m to pounds 21m.

However, a better than expected 8 per cent sales increase in the last two quarters could not overcome falling gross margins. Marconi has also seen a pounds 13m fall in sales in its broadband equipment division, mainly due to a decrease in US defence spending in the area.

Mr Parton said: "We have seen in the last two quarters, as the market has recovered, some fierce price competition. If we are going to compete aggressively ... we need to continue work to address costs."

Marconi's share price fell 7 per cent, down 41p to 585p, on the back of the quarterly results. While a prediction of "mid single-digit sales growth" for the full year struck a slightly more upbeat note than previously, the company warned that gross margins would be at the lower end of the 33-34 per cent range.

Mr Parton, however, said there was still plenty of cash left in the business - pounds 331m at the end of December - and that research and development spending was running at pounds 200m a year.

In the third quarter, sales in the company's division supplying equipment for telecoms companies' access networks increased to pounds 183m from pounds 160m a year before.

Mr Parton said he expected firm orders to start materialising in the spring in relation to BT Group's planned pounds 10bn core network upgrade.