Marconi slides after margins warning

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The Independent Online

Marconi, the telecoms equipment manufacturer, was one of the biggest fallers in the FTSE 250 yesterday after warning the market that profit margins would be at the bottom end of its forecast range.

Marconi, the telecoms equipment manufacturer, was one of the biggest fallers in the FTSE 250 yesterday after warning the market that profit margins would be at the bottom end of its forecast range.

Shares in the company, which came back from the brink of collapse last year, fell more than five per cent on the news.

Marconi said that although sales for the first quarter had risen slightly compared with a year earlier, gross margins would be at the lower end of its 30-32 per cent range.

Sales for the three months to the end of June reached £339m - 4 per cent up on the same quarter last year but 10 per cent down on sales in the final quarter of 2003-04. Marconi said margins had suffered because it was selling more cheap items and less expensive equipment, such as routers for high-security networks.

The warning brought back memories of three years ago when the internet bubble burst and Marconi almost collapsed, losing 95 per cent of its stock market value as it issued profit warning after profit warning.

The company only survived after thousands of job cuts and a massive debt-for-equity swap which saw £4bn of borrowings cancelled but shareholder interests virtually wiped out as creditors took control.

Since its re-listing last year, Marconi has more than doubled in value and now has a stock market capitalisation of £1.4bn. Until yesterday, its shares had outperformed the FTSE 250 index by about 8 per cent.

Mike Parton, Marconi's chief executive, said it remained upbeat over its prospects. "The return to modest year-on-year sales growth reinforces our full-year guidance and strengthens our confidence in our medium-term prospects," he said. The company continues to expect sales to grow by a low single digit figure for the year as a whole.

Marconi pointed out that the fall in sales between the last two quarters was not unexpected as its first and third quarters traditionally tended to be the two weaker periods of the year.

The broker Durlacher cut its stock recommendation on Marconi from "buy" to "hold" and said the company would need to come up with more positive news to maintain the upward momentum in its share price.

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