Sweden's LM Ericsson 2Q profit falls 70 pct

Shares in Sweden's LM Ericsson fell more than 8 percent after the telecommunications equipment maker posted a 70 percent drop in second-quarter profit, citing recent acquisitions and high development and restructuring costs.

Ericsson, a world-leader in mobile network infrastructure, reported a profit of 1.9 billion kronor ($320 million), down sharply from 6.4 billion kronor in the same quarter last year.

Sales in the three-month period ended June 30 rose 2 percent to 48.5 billion kronor ($8.1 billion), up a tad from 47.6 billion kronor in the corresponding period in 2007.

Development costs weighed heavily on the result, rising 24 percent in the quarter from the same three months a year earlier.

Some 1.8 billion kronor ($302 million) in restructuring costs were recognized in the period as part of the company's plan to cut expenses by 4 billion kronor ($672 million) a year. The plan will lead to thousands of layoffs worldwide.

Many analysts said the result was better than expected, yet Ericsson shares dropped 8.3 percent to 66.80 kronor ($11.22) in Stockholm in an overall lower market.

Helena Nordman-Knutson, an analyst at Ohman Fondkommission, said the market likely was reacting more to Ericsson's forecast than its quarterly results.

The Stockholm-based company maintained its outlook for the industry, saying it expects a "flattish" market in 2008.

Nordman-Knutson also noted that the share price had climbed in recent days. "It's increased some 10 percent ahead of the report," she said.

Sydbank analyst Jacob Pedersen said Ericsson's bottom-line figures actually looked "quite good" at a first glance.

"The numbers are in line, to better-than-expected," he said. "There is no real bad news in the report."

The company's gross margin, or the profit received between the cost of a product and the selling price, shrank in the second quarter to 35.7 percent from 43 percent.

Ericsson was also hit by weaker earnings in its Sony Corp. joint venture, Sony Ericsson. Last week, the co-owned company reported a 97 percent drop in second-quarter earnings as tougher market conditions hurt its sales.

Despite the drop in profits, Ericsson CEO Carl-Henric Svanberg said the company's "overall business activity shows stable development."

Sales had picked up some more in the U.S., Ericsson said, while Western Europe "remained slow."

Shares in Ericsson have received a rough beating since October when it made a hefty profit warning and cut its outlook for 2007.

Declining profits in Sony Ericsson has also helped wipe out large parts of its share value.