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Ericsson posts big loss but maintains 2002 outlook
( 2002-01-26 14:04 ) (7 )

Swedish mobile phone maker Ericsson announced as expected Friday a big net loss in 2001 but maintained a positive cash flow and stuck to its earlier predictions for a market turnaround later this year despite immediate difficulties ahead.

Reporting its annual results, Ericsson said it made a net loss of 21.3 billion kronor (US$2.01 billion) for the year, compared to a net profit of about the same amount in 2000.

Fourth-quarter performance was mixed but the company's overall pre-tax loss of 30 billion kronor was largely in line with analysts' forecasts.

After an early rise attributed to investor confusion over the company's unusually complex earnings statement, Ericsson shares slipped by around 4.5 percent to slightly over 47 kronor in late trading here amid skepticism about its capacity to meet performance targets.

In a conference call late Friday, Ericsson's chief financial officer, Stan Fornell, warned the company's traditionally strong network systems division could post a negative operating margin in the first quarter this year

"Yes, it can absolutely go negative," he admitted.

Finnish rival Nokia, the world's largest mobile phone manufacturer, also fell back on profit-taking a day after the company gave markets a lift when it reported 2001 profit of 2.2 billion euros (US$1.9 billion), defying the loss-making trend in the sector.

Ericsson chief executive Kurt Hellstroem acknowledged in a television interview after the results were published that the first two quarters of this year at least would be tough for Ericsson but said he was "cautiously optimistic" on the company's full-year performance.

"We will see a turnaround this year, but how much that will mean for us by the end of the year I don't dare say," Hellstroem told CNBC television.

In its earnings statement, Ericsson noted that 2001 had been a year of sweeping restructuring that included trimming its work force from 107,300 employees in March to 85,200 by year's end and analyst's were unphased by the the company's widely-anticipated losses.

Analysts described the Ericsson earnings as a mixed bag.

"The most positive thing was that the forecast for 2002 is unchanged for both sales and margins, and that margins on the system side were better in the fourth quarter than in the third quarter," said Bo Edvardsson, telecom analyst at Fischer Partners in Stockholm.

"The negative thing was order intake, that was weak in the fourth quarter. There has to be a real turnaround there if the company is to reach its targets for 2002".

Ericsson beat the expectations of some analysts by reporting a cash flow of 16.5 billion kronor in the fourth quarter and positive cash flow of 4.2 billion kronor for the full year, a development it attributed to improvement in working capital excluding sale of test plants.

"We achieved our cost reduction targets in the efficiency program" -- code for job cuts -- "and we will continue to improve profitability," Hellstroem said in a statement.

"We are now in a much stronger position to capitalize on market opportunities and restore profitability in 2002," he said.

Ericsson had already reported losses for the first three quarters of last year and the company's overall annual results, despite being its first yearly loss ever, came as a surprise to no one.

Ericsson shares rose on Thursday after Nokia of Finland reported its profits for 2001 and delivered a rosy forecast for a recovery of the battered telecom sector starting in the second half of this year.

The company said its new joint venture for manufacture of mobile telephones with Japanese consumer electronics giant Sony, launched last autumn, was off to a good start with "substantially lower cost structure" and early production of advanced phones.

Ericsson noted sales of mobile phone units in 2001 reached around 390 million units, short of its 400 million-unit forecast, and predicted sales volume growth of around 10 percent this year.