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STOCKHOLM: Ericsson, the world leader in mobile phone network equipment, reported a 70 percent collapse in net profit for the second quarter on Tuesday and a two-thirds fall in operating margins.
It also warned of a weak full-year 2008, sending its stock plunging.
The group said it had been hit by the slowdown in western Europe, weakness of the dollar and restructuring charges.
Ericsson shares fell abruptly, closing down 11.05 percent to 66.80 kronor as the wider market lost 2.61 percent.
Net profit fell to 1.9 billion kronor (201.3 million euros, 320.6 million dollars) from 6.4 billion kronor in the same period of last year.
However sales rose 2.0 percent to 48.5 billion kronor, beating analyst forecasts for 47.5 billion euros.
The group, which has been restructuring its activities since the last quarter of last year, said sales on a constant exchange rate basis had risen by 7.0 percent.
Ericsson's sales in its main business unit, networks, slipped by one percent while its multimedia division saw sales climb 16 percent and its professional services unit was up seven percent.
"The overall business activity shows stable development," Ericsson chief executive Carl-Henric Svanberg said, noting that sales continued to pick up in the United States but remained weak in western Europe, its main market.
However, operating profit fell 69 percent to 2.89 billion kronor and the operating margin, a ratio of operating profit to sales, slumped to 6.0 percent from 19.4 percent.
Since 2007, Ericsson has experienced rapid growth in emerging markets with new roll-outs but the group has lower margins in these markets due to rising competition and because launches cost more and bring in less money than expansions of existing networks.
Meanwhile, in mature markets such as western Europe, network expansion and upgrades are declining.
The company, one of Sweden's biggest industrial groups which employs almost 20,000 people here, shocked markets in October 2007 when it warned that slowing demand through 2008 would result in falling profits.
It is revamping its operations in a bid to improve cash flow and cut expenses by 4.0 billion kronor a year with full effect in 2009.
Restructuring costs came in at 1.8 billion kronor in the second quarter but on a positive note, cash flow from operating activities totalled 8.5 billion kronor, compared to 4.2 billion a year ago.
Looking ahead, Svanberg said that "with no major changes in the market environment, we still find it prudent to plan for a flattish mobile infrastructure market in 2008 and our focus on adjusting our cost base remains."
Michael Andersson, an analyst at Evli bank, said the outlook for the telecom sector weighed on the market.
"The results are okay by themselves but it's still quite clear that the visibility going forward is very low again," he said. "Only North and South America show growth, all other regions are negative."
At a press conference, Svanberg said he saw no growth on the mobile networks market in western Europe before 2009.
Greger Johansson, an analyst at Redeye, said Svanberg had no choice but to be prudent.
"It's the best he can do now," he said, adding that he did not expect much difference in the third quarter. - AFP/de
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