Ericsson Erupts

Yesterday, Nokia (NYSE: NOK) dropped 20% after predicting next quarter's sales would be flat or lower because of continuing economic softness. Today, fellow wireless firm Ericsson (Nasdaq: ERICY) rose 20% in early trading, even though it issued a similar forecast.

What we're seeing today is the market pricing Ericsson's stock accordingly as it becomes clear its "financial crisis" is now behind it. Although it lost $0.17 per share in the second quarter on a 28% drop in revenue, its cost-savings program -- which will more than halve the number of employees -- has stabilized the company. Indeed, CEO Carl-Henric Svanberg expects to reach profitability this year for the first time since the telecom slump began in 2001.

Ericsson also compares favorably to Nokia in the margin department. Ericsson is forecasting improvement, while Nokia sees its margins -- though higher -- being pressured downward.

"We can conclude that we have the financial crisis now behind us," said Svanberg. "We are on steady ground."

Still, investors should keep in mind that these companies are battling in a sector that's having a hard time shaking off weak demand and overcapacity. Ericsson says the global mobile-systems market could decline by more than 10% this year, as measured in U.S. dollars. Things will turn eventually, though, and Svanberg's recent efforts are getting it in a better position to take advantage when that time comes.