Ericsson Warning Tanks Shares

Includes: ERIC, NOK
by: Jonathan Liss

Little more than a week before it was set to report Q3 earnings, Swedish mobile handset maker Telefonaktiebolaget LM Ericsson warned its earnings would fall well short of expectations, and that the "current [poor] conditions will prevail" through 2008. Shares reacted harshly, plunging 26% in Stockholm in midday trading Tuesday, while tumbling 27.7% in pre-market trading on the Nasdaq (as of 5:00 a.m. ET). The warning from Ericsson, which is the world's largest builder of global networks, had a ripple affect, sending shares of mobile network competitor Alcatel-Lucent lower by 5.2% in European trading, and handset maker Nokia down by more than 2%. Ericsson warned its operating earnings fell 36% to 5.6 billion Swedish crowns ($876 million), from year-earlier earnings of 8.8 billion crowns, "below the company's own as well as current market expectations and primarily a result of an unexpected shift in the business mix." The company's CEO, Carl-Henric Svanberg, further blamed "a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavorable business mix that also negatively affected Group margins." On average, analysts were expecting slight growth in operating income to 8.9 billion crowns. One Stockholm-based analyst believes the company's warning suggests 2008 earnings estimates may need to be lowered by 15%. Ericsson reports earnings on October 25.

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