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April 1, 2004

Ericsson raises Q1 gross margin expectation

LM Ericsson Telefon AB's first-quarter gross margin rose above its own forecasts as cost-cutting measures at the company start to reap benefits.

By CBR Staff Writer

The margin is the widest measure of how a company manages costs in relation to sales. Gross margins are estimated to improve above the level of 41.6% attained in the fourth quarter 2003. The main reason for the improvement is better than anticipated benefits of cost of sales reduction activities.

The Swedish telecoms equipment maker said revenue would rise moderately year-on-year, but decline against the seasonally strong October-December period. Sales traditionally drop at the start of the year compared with the usually strong fourth quarter when telecoms operators spend their remaining budgets.

In early February, Ericsson quantified moderate year-on-year growth as a 5% to 10% increase.

At that time, CEO Carl-Henric Svanberg was also quoted as saying that the mobile infrastructure market has definitely stabilized as the company saw some catch-up spending by phone companies that had delayed network expansion plans.

This statement reinforced the perception that the recovery in the telecoms equipment sector is well underway, especially following respectable results from Alcatel, Lucent Technologies, and Cisco Systems.

It is hard to imagine that at one stage the whole future of Ericsson was in doubt after it racked up huge losses during the downturn. This forced it to more than halve its workforce from 107,000 to just 51,583 at the end of 2003. Another 4,000 jobs are scheduled to be cut this year, but Svanberg said the company is now nearing the end of its restructuring activities. First-quarter results will be reported on April 23.

This article is based on material originally published by ComputerWire

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