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April 25, 2004

Ericsson ups forecast after upswing in orders

An upswing in demand for mobile operators is helping the recovery of LM Ericsson Telefon AB, and chief executive Carl-Henric Svanberg has insisted the company is "back in a growth phase now."

By CBR Staff Writer

Improved conditions helped the company to record net income of SEK 2.9bn ($387.m) in its first quarter to March 31, up from a loss of SEK 4.3bn ($558.4m) on revenue up 8.7% at SEK 28.1bn ($3.6bn). Even more encouraging, orders climbed 22% to SEK 33bn ($4.26bn).

Ericsson has upgraded its forecast for mobile systems market this year, measured in US dollars, to flat to moderate growth compared with its earlier estimate of flat to slight growth. It bases this on 3G roll-outs and network expansions, particularly as operators catch up on investment postponed in previous years.

But Svanberg cautioned that sales growth for the year may be lower than that for the first quarter, a view that depressed analysts and the shares were down 9.1% in New York at $29.30.

However, a company that has so often disappointed in the past will be anxious not to raise expectations excessively, and the growth in orders points to the upswing continuing.

Cuts in the workforce brought a sequential improvement of 3.1 percentage points in the gross margin to 44.7%, and Ericsson’s rapidly improving profitability has surprised skeptics in the investment community.

While the 3G roll-out in Europe has proceeded slowly, Ericsson expects most GSM networks to be upgraded with EDGE. Svanberg believes it important to snuggle closer to operators who need total solutions that combine technical know-how with customer awareness. The company’s traditional role as a vendor is transforming increasingly into that of a strategic partner.

Ericsson said demand for seamless services will drive the convergence of mobile and fixed networks, including voice over IP. Svanberg said this will have a positive impact on advanced mobile services and applications.

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While the company has pruned its workforce, it has added 2,000 employees through managed services contracts, an area of its business where it expects good growth in 2004. Though flat on a constant currency basis, professional services revenue was SEK 4.1bn ($533m) in the first quarter and accounted for 16% of total systems sales.

After suffering from comparisons with Nokia for many years, Ericsson will be delighted with the growth enjoyed by its Sony Ericsson handset venture, which has benefited hugely from Nokia’s lackluster product range and Ericsson’s share of net income was SEK 500m ($65m), compared with SEK 300m ($39m).

This article is based on material originally published by ComputerWire

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