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Ericsson surprises markets with strong third-quarterreport

  • by Delphine Touitou Delphine TouitouMon Oct 20,8:47 am ET
/File – Ericsson, the worldleader in mobile phone network equipment, reported a 28-percentdrop in third-quarter …

STOCKHOLM (AFP) – Ericsson, the world leader in mobile phone network equipment, surprised markets Monday with an early and strong third-quarter earnings report, stressing that it remained largely unscathed by the global financial turmoil.

"Our business in the quarter has not been impactedbythefinancial turmoil. Our customers are generallyfinanciallystrong,"company chief executive Carl-Henric Svanberg said in astatement.

Ericsson reported a 28-percent drop in third-quarter net profit to 2.8 billion kronor (281 million euros, 379 million dollars) amid heavy restructuring costs, but sales rose by 13 percent to 49.2 billion kronor and pre-tax profit grew by 10 percent to 6.2 billion kronor.

Shares in Ericsson soared on the news, rising by almost20percentin afternoon trading to 60 kronor as the Stockholmexchangewas up3.42 percent.

Company spokesman Tobias Gyhlenius said the group, whichhadbeenscheduled to release its report on Friday, had presenteditearlybecause "the results were better than expected" and thegroupwantedto "avoid speculation" this week.

"A good report and strong sales," Oehmans telecoms'analystHelenaNordman-Knutson told financial daily Dagens Industri.

Ericsson's sales grew everywhere except in Western Europe,wheretheywere down six percent from a year earlier.

Despite the persistent slowdown in Europe whichhasimpactedprofits for the past year, Ericsson saw a turnaround initscorebusiness area, networks, where sales soared 16percentafterslipping one percent in the previous quarter.

For the first nine months of the year, network sales wereupbyfive percent.

"Build-out of new networks as well as networkexpansionsacrossall markets except Western Europe continueswithparticularlystrong growth in India, Indonesia, Russia andBrazil,"the companysaid.

Ericsson said its margins in the networks divisionhadimprovedfrom the previous quarter and year-on-year, due tobroaderbusinessactivities and shrinking spending.

The group as a whole reported an operating margin of 11.5 percent in the quarter, compared to 12.9 percent a year earlier.

Despite the difficult financial climate, thecompanyremainedoptimistic about its long-term growth.

"The need for communication continues to grow and playsavitalrole for the development for a prosperous society. Ericssoniswellpositioned to lead this development," it said.

"The demand for broadband is strong," it said, adding:"Weexpecttraffic in mobile and fixed networks to increase tenfoldinthe nextfive years mainly driven by Internet applicationsandtheintroduction of interactive HD-TV."

Svanberg expressed caution however about the outlookfornextyear.

"We have a positive longer-term view for our industry,however,aswe look into 2009, we continue to plan for a flattishmarket,and wehave measures in place also for tougher conditions,"hesaid.

"Networks are loaded and traffic shows strong increase,"hesaid,but warned that "in the present financial turmoil, itishoweverhard to predict how operators will act and to whatextentconsumertelecom spending will be affected."

Since 2007, Ericsson has experienced rapid growthinemergingmarkets with new rollouts but the group has lowermarginsin thesemarkets due to rising competition and becauselaunches costmoreand bring in less money than expansions ofexisting networks.

Meanwhile, mature markets such as Western Europe are declining, prompting one of Sweden's biggest industrial groups, which employs almost 20,000 people in Sweden, to launch a radical restructuring programme at the end of last year in a bid to improve cash flow and reduce expenses by 4.0 billion kronor a year starting in 2009.

"We are seeing initial positive effects from ourongoingcostadjustments. Our financial position is strong withhealthy netcashand high payment readiness," Svanbergsaid.

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