Swedish telecom equipment maker LM Ericsson reported a 36% drop in net earnings Thursday, having warned investors last week (full story), and said CFO Karl-Henrik Sundstroem would step down immediately, to be replaced by Hans Vestberg. Shares plummeted almost 30% last week on the warning. Q3 profit was 3.97 billion kronor ($614.6 million), vs. 6.23 billion a year ago. The drop, the company said, was largely due to weak sales in high-margin software, and greater sales in its low-margin network rollouts. Revenue rose 5.5% to 43.55 billion kronor, while operating profit fell 36% to 5.64 billion kronor. CEO Carl-Henric Svanberg remarked about the company's dwindling margins: "Our networks business continues to develop most rapidly where new network build-outs and break-in contracts are predominant and pricing pressure is most intense. This has so far been offset by higher margin sales of software, expansions and upgrades to our installed base. While we expect such higher margin sales to gradually resume, new network build-outs will continue to weigh on networks [margins]," (full earnings call transcript later today). Shares are now flat over the past two years, after last week's warning knocked $15 billion off the company's market cap.
Commentary: Ericsson's Outstanding Value: Patience is Key • Don't Write Off Ericsson, Especially at This Valuation
Stocks to watch: ERIC. Competitors: ALU, NT, MOT, NOK
Earnings call transcript: LM Ericsson Q2 2007
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