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Ericsson: recovery still far off

Energetic attack on costs

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Ericsson has reported a Q2 net loss of $330 million.

Intensive cost cutting is all that kept telecoms giant Ericsson on its feet in Q2, when revenues fell by more than 28%. The most positive aspect to the company's results is its book-to-bill ratio, but a recovery in revenues still seems far off.

LM Ericsson Telefon's shares surged 18% on Friday due to better-than-expected second-quarter figures. However, the company's outlook remains poor and it was only vigorous cost-cutting that reduced the scale of
its losses in a market that shows few signs of recovery.

For the quarter to June 30, the net loss was flat at $329.9 million on revenue that fell 28.4% to $3.3 billion. At the mid-term stage the loss was $851.5 million, down from a loss of $689.8 million on revenue that fell 29.1% to $6.5 billion.

Carl-Henric Svanberg, who was brought in as CEO in February to turn around a company whose survival appeared in doubt, insisted that the company's financial crisis was behind it. "We are on steady ground. We are well on track to regain profitability," he said.

Ericsson has market leadership in mobile network infrastructure. The company believes that the mobile systems market could decline by more than 10% this
year, although it expects to maintain its market share.

Mobile network orders dropped 13% to $2.4 billion in the second quarter, while sales of fixed-line networks crumpled 42% to $205 million. Sales of professional services, Ericsson's big hope for the future, declined 14% to $556 million.

Overall sales for the third quarter are expected to be flat or slightly down sequentially, and a recovery in revenue is likely to be some time off. What is turning the company round is an energetic attack on costs: a workforce that stood at 107,200 in 2001 is now down to 57,600, and is due to reach 47,000 by 2004.

The one flicker of hope is that Ericsson's book-to-bill ratio has stayed above 1 for the second successive quarter, though orders at $3.4 billion
were 20% down on the same period last year.

Source: Computerwire/Datamonitor

Recommended research: Datamonitor: "Mobile Consumer Update; data data data" (DMTC0864)

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