Ericsson warns mobile sales could fall by over 20%

Ericsson, the Swedish maker of mobile phone networks, yesterday warned that sales of its core mobile systems could drop more than 20 per cent this year.

Ericsson, the Swedish maker of mobile phone networks, yesterday warned that sales of its core mobile systems could drop more than 20 per cent this year. However, it predicted that the group was still on track to return to profit next year.

The company, which has been hard hit after telecoms operators dramatically reined in their spending, said mobile systems sales this year could decline "more than our revised estimate of an overall market decline of 20 per cent".

Nevertheless, while Ericsson admitted the market remained "unpredictable" in general, it said it expected to return to profit "at some point in 2003". It believes the market in 2003 will not fall as much as this year and will begin to stabilise "at a lower level".

The move came as the company announced a pre-tax loss of 3.9bn Swedish krona (£269m) in the third quarter compared with a loss of Skr6.4bn a year before. Sales were Skr33.5bn down from Skr47bn while order intake plunged to Skr17.9bn in the quarter, from Skr35.3bn a year before, hit particularly by cancellations of orders from Germany's Mobilcom and Quam.

Ericsson, which recently raised Skr29bn through a rights issue to shore up its balance sheet, has also been forced to slash jobs as part of a wider cost-cutting exercise to return the company to profit.

Around 4,500 workers left the business in the third quarter, reducing headcount to 71,700, and the company expects to have fewer than 60,000 workers by the end of next year.

Despite the tough market conditions, Kurt Hellström, Ericsson's president and chief executive, remained upbeat about the firm's prospects over the longer term.

"Mobile communications is a long-term growth business. Over half a million new subscribers sign up each day and people are using their phones more and more. With only 17 per cent worldwide penetration and mobile data just beginning, significant need for network expansion lies ahead," he said.

Ericsson, which last year shunted its handset manufacturing business into a venture with Japan's Sony called Sony Ericsson Mobile Communications, said it expected the handset market this year to total around 390 million units.

The company also said it planned to delist its shares from the French, German and Swiss exchanges as "insignificant" trading volumes did not justify listing costs.