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Ericsson 1Q profit surges
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April 28, 2000: 7:04 a.m. ET
Demand for mobile-phone infrastructure boosts Swedish equipment maker
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LONDON (CNNfn) - Swedish telecom equipment maker Ericsson said Friday its first-quarter profit quadrupled on strong demand for mobile-phone infrastructure from network operators and service providers, sparking a rally in its stock.
Net income for the quarter rose to 4.2 billion Swedish crowns ($475 million), or 2.15 crowns per share, from 905 million crowns, or 0.49 per share, a year earlier. The company's shares rose 7.4 percent to 825 crowns.
Pretax profit, which rose almost fivefold to 6.1 billion crowns, far exceeded analysts' expectations of 4.40 billion crowns. Sales rose 42 percent to 59.1 billion crowns, also beating forecasts.
"For the full-year 2000, we now expect sales to increase by more than 25 percent and we continue to expect substantial growth in earnings, mainly driven by mobile systems," the company said.
 Ericsson's Network Operators and Service Providers business segment, its largest, saw sales rise more than 36 percent on demand for cellular networks and mobile Internet systems, applications and devices. Mobile systems now account for 53 percent of Ericsson's sales.
"This quarter shows Ericsson's clear lead in mobile Internet," including third-generation cellular phone technology said Ericsson President Kurt Hellstrom.
Third-generation (3G) mobile phone technology, permitting users to see moving video pictures and get access to the Internet, is expected to become the main driver for profit in the coming years.
Governments around the world are expected to grant more than 80 licenses to supply 3G services in the next 12 months. The British government on Thursday completed its auction of five 3G licenses, raising more than £22 billion. Spain and Finland have already handed out equivalent licenses.
Although Ericsson is among the world's three biggest producers of cellphones, it has made meager profits on the devices in recent years amid production hitches and falling prices. It said Friday its first-quarter sales in the consumer products division - mostly mobile phone handsets - rose 53 percent to 14.8 billion crowns, while operating profit climbed to 457 million crowns from near break-even a year earlier, generating an operating profit margin of just 3 percent, far below the 10.8 percent achieved across the company as a whole.
"While production was on track, financial performance is still inadequate," Ericsson said of its mobile-phone business. "A strong shift to entry-level phones affected gross margins." The company warned that it didn't expect to meet its financial target of raising the division's operating margin into double digits this year.
"It looks like the handset business had grown as expected, but the margin level was very poor," said Michael Schroder, an analyst at brokerage Opstock in Helsinki. "They have had problems with mobile-phone margins for a long time and they haven't really kept pace in what is needed -- new handset models for different customer segments."
Stockholm-based Ericsson plans to boost sales of mobile phones with a new range of phones that can access the Internet.
Finnish rival Nokia, the world's largest mobile-phone maker, on Thursday posted a better-than-expected 55 percent rise in first-quarter net income to  891 million ($813 million), as revenue in its mobile-phone business surged 88 percent. 
--from staff and wire reports
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Ericsson
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