Ericsson AB shares surge as cuts aid company

SHARES of Ericsson AB, the world’s largest maker of wireless networks, surged as much as 27% as accelerated cost cuts helped the company post a narrower-than-expected loss in the second quarter.

The net loss was 2.7 billion kronor (€292 million), the same as in the year-earlier period and down from 4.3 billion kronor in the first quarter, chief executive officer Carl-Henric Svanberg said at a press meeting. The pretax loss excluding reorganisation costs and one-time items was smaller than analysts had predicted.

Ericsson’s adjusted pretax loss narrowed to 200 million kronor in the second quarter from 3.08 billion kronor a year earlier. Analysts in an SME Direkt survey predicted a 1.9 billion krona loss on that level. The company’s target of returning to profit is based on that pretax measure.

The net loss shrank to 0.17 krona a share from 0.25 krona.

Ericsson raised 30 billion kronor in a rights offer last year.

Before yesterday, Ericsson’s market value had dropped more than $200 billion since March 2000.

The company booked 3.8 billion kronor in costs for job cuts.

It ended the quarter with 57,600 employees, down from 64,600 at the start of the year and 105,000 in 2000. Svanberg plans to trim the workforce to 54,000 this year and 47,000 in 2004.

Rival Nokia yesterday said its network sales will decline as much as 20% this quarter. US competitor Lucent Technologies Inc this week pushed back its target date for profitability after third-quarter sales missed forecasts.

Ericsson’s “numbers come as a relief, given that Nokia’s report yesterday was something of a cold shower, especially in the terms of the outlook”, said Tom Bystedt, who helps manage the equivalent of $427 million at 3C Fund Management Ltd.

Ericsson controls almost a third of the market for wireless networks, more than double the share of closest rival Nokia, according to researcher Gartner Inc.

Ericsson, which counts 18 of the world’s 20 largest mobile phone operators among its clients, this week won an order worth $500 million from T-Mobile International AG to expand, upgrade and maintain wireless networks in the US.

Revenue this quarter will be unchanged or fall “slightly’ from the previous three months, Ericsson said. Svanberg said third-quarter sales are typically weaker than in the previous three months.

The company generated cash flow of 5.1 billion kronor from its operations in the second quarter after pushing customers to pay faster and reducing inventories. It used up 10 billion kronor to pay back bond debt and plans an additional 2.3 billion kronor in debt payments this year.