Ericsson warning shakes telecom stocks

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The Independent Online

European telecoms stocks were shaken yesterday when Ericsson, the mobile phone company, forecast a dramatic slowdown in the growth of the mobile phone market and announced that it was exiting handset production.

European telecoms stocks were shaken yesterday when Ericsson, the mobile phone company, forecast a dramatic slowdown in the growth of the mobile phone market and announced that it was exiting handset production.

The company also reported figures that showed a sharp contraction in the growth rate of its biggest division, Network Operators, which provides electronic infrastructure equipment to build out mobile phone networks.

After increasing sales in the division at some 44 per cent a quarter for the first nine months of 2000, turnover growth fell to 21 per cent in the fourth quarter.

Per Lindberg, an analyst at Dresdner Kleinwort Benson, said: "The message is a sharp deceleration of infrastructure sales. Also there is a hike in the research and development costs of these systems."

The company estimated the worldwide mobile phone market of 405 million to 415 million in 2000 - up 50 per cent on the previous year. Ericsson expects the market to grow about 26 per cent to between 500 million to 540 million units in 2001, down from its previous estimate of 525 million to 575 million units.

Ericsson shares fell 10 per cent, with a knock-on effect on other European players. Philips dropped 5.8 per cent, Marconi 4.4 per cent, Alcatel 3.6 per cent and Siemens 3.3 per cent. Nokia eased one per cent.

Ericsson announced it would outsource the manufacture of phone handsets, in an attempt to stem loses and dwindling market share in the over-supplier sector. The Swedish company will continue to develop and sell Ericsson-branded handsets, but production will be contracted out, mainly to Flextronics, a US group.

The company reported that its sales of handsets fell 17 per cent to 13.9bn Swedish kronor (£992m) in the fourth quarter of 2000, leading to a divisional loss of 10.3bn Swedish kronor for the period. A restructuring charge of 8bn kronor was taken.

The workforce of the consumer products division, which makes handsets, will be cut this year from 18,000 to 7,000 workers, with 4,200 employees joining Flextronics. At the company's Basingstoke site, 90 of the 470 workers will be sacked.

Kurt Hellstrom, Ericsson's president, said: "The mobile phones losses are caused by delivery failure from key suppliers and an inadequate product mix in the entry-level market."

During the quarter, Ericsson sold 11.8 million phones, to take its 2000 sales of the product to 43.3 million, an increase of 38 per cent. Group fourth quarter losses were 1.5bn kronor, with a profit of 16.7bn kronor for the year as a whole.

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