Ericsson Drops on Weak Q4 Guidance

Ericsson, the world's biggest maker of mobile-network gear, on Tuesday predicted sales and margins for Q4 would be at the lower end of the forecast range it had given last month, due to tightening U.S. and European demand and unrest in emerging markets. The news sent shares in the telcom giant down 11% to their lowest since 2004. In October, Ericsson shares plummeted 30% after the company warned of weak Q3 earnings, and said Q4 sales would be between $8.4 and %9.6 billion and operating margins would be in the mid-teens. Analysts' Q4 estimates have been for sales of about $8.79 billion. Disappointed Ericsson gave no indication when improvements would be seen, and analysts and investors have begun to express concern about the company's ability to monitor business performance. CFO Hans Vestberg, who replaced CFO Karl-Henrik Sundstrom within days of the October announcement amid promises of better monitoring and avoiding market shocks in future (full story), told investors that wireless network building projects in Europe where operators involved in mergers and acquisitions are slowing spending on upgrades would weigh on Ericsson's margins for several quarters. Piper Jaffray lowered its price target from $33 to $26, but maintained its Neutral rating. "This makes it obvious that something must be wrong in their reporting systems," said Redeye AB analyst Greger Johansson. "I don't have much confidence in the company or management."

Sources: Bloomberg, Reuters, AP, LightReading, StreetInsider
Commentary: Tuesday's Options Report: Ericsson • 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: Telefon AB LM Ericsson Q3 2007

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