LONDON – Sweden's Ericsson, the world's top mobile phone equipment maker, sent its shares crashing over 13 percent on Tuesday as it predicted that the hard-hit telecoms industry was unlikely to recover next year.
Speaking at a strategy and technology summit to analysts and reporters in London, the group's top executives emphasized that they could only give a ``very, very early indication'' for 2002 -- but saw ``no clear signs of a recovery'' in the overall market.
As a global economic slowdown is compounded by over-capacity and telecoms companies slash investments and jobs, Chief Financial Officer Sten Fornell said the market for mobile systems would see only flat to modest growth in 2001 and 2002.
Fornell said he expected Ericsson's share to grow ``at least'' in pace with this market this year. And in 2002, Ericsson's top customers -- European telecoms operators -- will be required by third-generation mobile licenses to upgrade networks, generating more business for equipment suppliers.
However, this year is turning out to be challenging across fixed and mobile markets. Ericsson said it expected weakening economic conditions in Latin America's markets and cautious European markets to offset a stronger second half in North America and continued strength in China and Japan.
In the long term, Ericsson is still targeting sales growth of over 20 percent and an operating margin of 10 percent or better. But in the short term, markets have become even more shaky than feared.
``No one can tell when we will see an end to the downturn,'' said Ericsson's Chief Executive Kurt Hellstrom.
FURTHER COST CUTTING?
Meanwhile Ericsson, which has already announced a radical cost-cutting strategy, said it would take further action to reach profitability if necessary.
``Our market environment has become even more uncertain and that's nothing we can do much about -- but we can control our costs,'' Hellstrom said, vowing that cash flow would be a top priority this year.
The group is already axing 22,000 jobs -- one fifth of its workforce -- to help cut costs by 38 billion Swedish crowns ($3.6 billion) annually in an attempt to shore up crumbling margins and return to profit.
The gloomy forecast drove the company's already languishing shares to a 2.5-year low of 43.90, a drop of 13.5 percent, making Ericsson the biggest blue-chip loser in Europe.
Finnish rival Nokia, was caught up in the sell-off, shedding 3.4 percent, and the whole European technology sector tumbled to almost three-year lows.
``What we have got to see is some sort of sign, or catalyst, which indicates earnings upgrades,'' said Simon Kirton, fund manager at Aberdeen Asset Management. ``At the moment there is no sign of this. So for fund mangers, it's a matter of getting out and staying out (of the sector).''
But Ericsson called for calm amid mounting investor fears that third-generation mobile phones and fresh revenues from new, super-fast Internet services would be further delayed -- and thus weigh down already debt-laden European operators, which have paid 120 billion euros ($108 billion) for 3G licenses.
The company said it expected the first 3G handsets to be available toward the end of 2002, with volume shipments on track to start in 2003 as operators switched focus from network upgrades to marketing and selling new handsets.
Fornell said he believed market concerns that there would be ``material delays in revenue recognition'' for 3G phones were exaggerated.
However, in a note of caution, Fornell told the conference that sales of 2.5-generation GPRS (general packet radio service) Internet phones, which are seen as a bridge to faster 3G phones, had been slightly slower than expected to date.
HANDSET UNIT FIGHTS BACK
Loss-making Ericsson, the world's number three handset maker, is merging its handset unit with that of Japan's Sony Corp in a bid to beat off tough competition from industry leader Nokia and U.S. rival Motorola.
Ericsson has said the formation of the joint venture will be cash flow neutral for the group in the fourth quarter -- and that it will be profitable from the start. But the group said on Tuesday this would be a ``little more of a challenge'' in the current market.
Earlier on Tuesday, Ericsson said it would launch three new handset models in the fourth quarter in a battle to turn around its handset division against tough competition.
Two T60 Internet-enabled handsets, which work over TDMA and CDMA networks used in North and South America, will be available there in the fourth quarter. A third model for Europe and Asia -- the T65 -- will also be available in the fourth quarter. It is a GPRS Internet phone.
Ericsson phones, known for their angular design and chunky external aerials, have been criticized for a focus on engineering and high-end functionality rather than user-friendly design, strong branding and consumer-oriented marketing.
The new models feature a curved, ergonomic design and can link with various devices and adapters.
Sony and Ericsson said last month their joint venture was on track to start on October 1. The two companies will continue to market handsets under their own brand names until a new brand is coined in the second half of 2002.
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