STOCKHOLM (AFP) - Ericsson, the world leader in mobile phone network equipment, announced a 70-percent collapse of net profit for the second quarter on Tuesday and a two-thirds fall in operating margins.
And it warned of a weak 2008 outlook, sending its stock plunging.
The group said it had been hit by the slowdown in western Europe, weakness of the dollar and restructuring charges.
The Ericsson share fell abruptly, shedding 9.05 percent to 68.30 kronor in midday trading in a market down by 3.26 percent to 857.75 points.
Net profit fell to 1.9 billion kronor (201.3 million euros, 320.6 million dollars) from 6.4 billion kronor in the same period of last year.
But sales rose by 2.0 percent to 48.5 billion kronor, exceeding expectations by analysts who had forecast about 47.5 billion euros, a consensus poll by Dow Jones Newswires found.
The group, which has been restructuring its activities since the last quarter of last year, said that sales on a constant exchange rate basis had risen by 7.0 percent.
Ericssons sales in its main business unit, networks, slipped by one percent while its multimedia division saw sales climb by 16 percent and its professional services unit rose by seven percent.
"The overall business activity shows stable development," Ericsson chief executive Carl-Henric Svanberg said, noting that sales continued to pick up in the United States but remained weak in western Europe, its main market.
However, operating profit fell by 69.0 percent to 2.889 billion kronor and the operating margin, a ratio of operating profit to sales, slumped to 6.0 percent from 19.4 percent.
Since 2007, Ericsson has experienced rapid growth on emerging markets with new rollouts. But the group has seen lower margins on these markets, due to rising competition and because new rollouts are costlier and bring in less money than expansions of existing networks.
Meanwhile, on mature markets such as western Europe, network expansions and updates are declining.
The company, one of Swedens biggest industrial groups and employers, is therefore in the process of revamping its operations in a bid to cut expenses by 4.0 billion kronor a year with full effect in 2009.
Restructuring costs came in at 1.8 billion kronor in the second quarter.
Looking ahead, Svanberg said that "with no major changes in the market environment, we still find it prudent to plan for a flattish mobile infrastructure market in 2008 and our focus on adjusting our cost base remains."
Michael Andersson, an analyst at Evli bank, said the outlook for the telecom sector was weighing on the market.
"The results are okay by themselves but its still quite clear that the visibility going forward is very low again," he said.
"Only North and South America show growth, all other regions are negative," he said.
At a press conference, Svanberg said he saw no growth on the mobile networks market in western Europe before 2009.
Greger Johansson, an analyst at Redeye, said Svanberg had no choice but to be prudent.
"Its the best he can do now," he said, adding that he did not expect much difference in the third quarter.
And it warned of a weak 2008 outlook, sending its stock plunging.
The group said it had been hit by the slowdown in western Europe, weakness of the dollar and restructuring charges.
The Ericsson share fell abruptly, shedding 9.05 percent to 68.30 kronor in midday trading in a market down by 3.26 percent to 857.75 points.
Net profit fell to 1.9 billion kronor (201.3 million euros, 320.6 million dollars) from 6.4 billion kronor in the same period of last year.
But sales rose by 2.0 percent to 48.5 billion kronor, exceeding expectations by analysts who had forecast about 47.5 billion euros, a consensus poll by Dow Jones Newswires found.
The group, which has been restructuring its activities since the last quarter of last year, said that sales on a constant exchange rate basis had risen by 7.0 percent.
Ericssons sales in its main business unit, networks, slipped by one percent while its multimedia division saw sales climb by 16 percent and its professional services unit rose by seven percent.
"The overall business activity shows stable development," Ericsson chief executive Carl-Henric Svanberg said, noting that sales continued to pick up in the United States but remained weak in western Europe, its main market.
However, operating profit fell by 69.0 percent to 2.889 billion kronor and the operating margin, a ratio of operating profit to sales, slumped to 6.0 percent from 19.4 percent.
Since 2007, Ericsson has experienced rapid growth on emerging markets with new rollouts. But the group has seen lower margins on these markets, due to rising competition and because new rollouts are costlier and bring in less money than expansions of existing networks.
Meanwhile, on mature markets such as western Europe, network expansions and updates are declining.
The company, one of Swedens biggest industrial groups and employers, is therefore in the process of revamping its operations in a bid to cut expenses by 4.0 billion kronor a year with full effect in 2009.
Restructuring costs came in at 1.8 billion kronor in the second quarter.
Looking ahead, Svanberg said that "with no major changes in the market environment, we still find it prudent to plan for a flattish mobile infrastructure market in 2008 and our focus on adjusting our cost base remains."
Michael Andersson, an analyst at Evli bank, said the outlook for the telecom sector was weighing on the market.
"The results are okay by themselves but its still quite clear that the visibility going forward is very low again," he said.
"Only North and South America show growth, all other regions are negative," he said.
At a press conference, Svanberg said he saw no growth on the mobile networks market in western Europe before 2009.
Greger Johansson, an analyst at Redeye, said Svanberg had no choice but to be prudent.
"Its the best he can do now," he said, adding that he did not expect much difference in the third quarter.
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