Sabtu, 26 April 2008

STOCKHOLM (Reuters) - Shares in telecom equipment maker Ericsson (ERICb.ST) rocketed by more than a quarter on Friday, their biggest gain in five years, after the company unveiled surprisingly strong first-quarter profits.

Earnings, still well adrift from a year ago, beat a set of gloomy forecasts set in train by repeated bad news which followed a dismal third quarter from the worlds largest mobile network builder.

"Im very happy with the numbers. Theyre better than my forecasts and better than consensus," said Nicolas von Stackelberg at Sal. Oppenheim.

Ericsson made an operating profit of 4.3 billion Swedish crowns (729 million) in the quarter, a sharp drop from 8.2 billion a year earlier but better than the 3.95 billion average forecast when stripping out assumptions for restructuring costs.

Ericsson, which announced plans in February for sweeping cost savings, said it was taking an 800 million crown charge for restructuring cuts made during the quarter, but that was not included in the main profit and margin figures.

By 1434 GMT, Ericssons shares, which saw 50 percent of their value stripped away since an earnings shortfall in October, were up 18.5 percent at 14.75 crowns, buoying the broader Stockholm index.

It was the biggest intraday rise since April 2003. Shares in rival Alcatel-Lucent (ALUA.PA) rose 8 percent and the news lifted Europes technology index (.SX8P) 5.1 percent.

Investors have been worried about the direction of Ericssons main market, mobile network infrastructure, as telecoms operators have been holding back on capital spending.

And even though Ericsson stuck to a view that the infrastructure market would be flat this year, strong sales numbers signaled conditions may not be as weak as feared.

"I think the big issue, considering what has happened in the last six to nine months, is that you can see at least from Ericssons perspective that its a little more stable," said Greger Johansson, analyst at Redeye.


Group gross margin was 38.6 percent excluding the restructuring charges, compared with 43 percent a year earlier.

"It was a great quarter. The gross margin was especially better than I had forecast," said Hannu Rauhala, analyst at Pohjola. "Even in this very difficult environment for network sales, the figures were quite good."

North America, a relatively small market for the firm, had the strongest increase with a 39 percent rise to 4.3 billion.

Carl-Henric Svanberg, Ericssons chief executive, said in the statement that business had developed well considering market conditions and a falling dollar.

"We still find it prudent to plan for a flattish mobile infrastructure market in 2008," he said, adding cost reductions were running according to plan. Ericsson said in February it would cut its cost base by 4 billion crowns a year.

Ericssons key network division logged 30 billion crowns in sales, up 2 percent from a year earlier and exceeding forecasts.

Networks had an operating margin of 9 percent excluding restructuring costs, although Svanberg said the proportion of new network rollouts was still putting pressure on margins.

A higher share of network rollouts -- which have slimmer margins than the more lucrative upgrades and network expansions -- was the main culprit behind the third-quarter shortfall.

Johansson of Redeye said one encouraging sign was that price pressures were showing signs of easing a little. Chinese players and Ericssons large rivals Nokia Simens Networks (NSN.UL) and Alcatel-Lucent appeared to be taking a less aggressive stance.

Svanberg, in a teleconference with analysts, said: "We would expect the price competition at least not to get worse going forward, now that we have fewer, stronger players."

In addition to its 50 percent interest in handset maker Sony Ericsson (6758.T), which also has had profit troubles of late, Ericsson has divisions in professional services and multimedia.

Professional services revenues grew 20 percent to 10.3 billion crowns. Multimedia climbed 16 percent to 3.9 billion.

Ericsson repeated it expected good growth in the professional services market in 2008, while it has long touted multimedia as a potential future growth engine.

"Ericsson has quite a good product portfolio, they have a wider product offering for fixed-line networks and the products are quite good, said Pohjolas Rauhala. He said once cost cuts were in place, the foundation would be set for better profits.

(Additional reporting by Georgina Prodhan in Frankfurt, Tarmo Virki in Helsinki, Sven Nordenstam, Anna Ringstrom and Sarah Edmonds in Stockholm; Editing by Quentin Bryar)


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