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Ericsson plunges on warning

17 октября 2007

Ericsson, the world’s largest telecommunications equipment manufacturer, issued a severe profit warning yesterday that wiped out a quarter of its market value and triggered a sweeping change to its business strategy.

Ericsson plunges on warningThe Swedish company said operating income is expected to plummet 36 per cent to SEK5.6bn ($865m) in the third quarter compared with the same period last year and that operating margins would also fall in the fourth quarter.

The warning marked the end of a honeymoon period for Carl-Henric Svanberg, who has been Ericsson’s chief executive since 2003 and played a leading role in restoring the company’s profitability after the bursting of the internet bubble.

On a day Ericsson lost $15bn from its market capitalization, Mr Svanberg damped his trademark bullishness and said: “This is a day to be humble, concerned and disappointed.

”However, he added he had not considered resigning and ex- pressed confidence that Ericsson could improve its profitability.

Ericsson blamed the warning on a shortfall in contracts to expand or upgrade existing mobile networks, notably in the US and western Europe.

Such contracts generate higher margins compared with deals to roll out new mobile infrastructure in emerging markets.

Ericsson has increased its market share over rivals such as Alcatel-Lucent and Nokia Siemens partly through deals in developing countries such as China and India.

Ericsson’s shares collapsed after the warning, dropping nearly 30 per cent at one stage. They later closed 23.8 per cent down at Skr20.10, and the fall had a knock-on effect on industry peers. Alcatel-Lucent’s shares fell 4.5 per cent, Nokia dropped 3.3 per cent and Siemens ended 2.5 per cent down.

Mr Svanberg signalled a significant change to Ericsson’s business strategy, outlining how the company would focus on improving its operating margins next year rather than increasing its market share in mobile contracts. “We will not have as big ambitions next year to grow market share...We should shift our attention from market share to leveraging our size,” he said.

Источник: Financial Times

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