By Gustav Sandstrom
STOCKHOLM -- Telefon AB L.M. Ericsson /zigman2/quotes/207544813/delayed SE:ERIC.B -1.04% said Thursday third-quarter net profit fell sharply, hit by heavy restructuring charges, losses at its handset joint venture Sony Ericsson and declining gear sales.
The world's largest network-equipment maker reported a 71% drop in net profit to 810 million Swedish kronor ($118.2 million) for the three months to Sept. 30, from 2.84 billion kronor a year earlier. Sales fell 6% to 46.43 billion kronor from 49.2 billion kronor.
Analysts had expected, on average, net profit of 1.65 billion kronor on sales of 50.95 billion kronor.
The latest results include charges of 2.7 billion kronor related to the cost-cutting program it announced in January. The company said the plan would lead to restructuring charges of 6 billion kronor to 7 billion kronor and annual cost reductions of 10 billion kronor by the second half of 2010.
Ericsson also booked a loss of 1 billion kronor on Sony Ericsson, its handset joint venture with Japan's Sony /zigman2/quotes/201361720/delayed JP:6758 -0.98% Corp., which last week posted a wider third-quarter net loss of €164 million ($246 million).
Ericsson's third-quarter profit was below expectations mainly because of bigger-than-anticipated restructuring charges and weak sales, said HQ Bank analyst David Hallden . However, core margins were stronger than the market had expected, he said.
Shares in Ericsson were down 7.2% in midafternoon trading in Stockholm.
"Sales of network equipment declined due to lower demand in the current tougher market environment," said Chief Executive Carl-Henric Svanberg . Speaking in a conference call, Mr. Svanberg said tight credit conditions hit demand in several emerging markets, including Africa and the Middle East.
Demand is increasingly shifting from voice telephony to mobile broadband, Ericsson said, adding that sales of mobile broadband technology still don't offset the sales decline in GSM, the dominant second-generation mobile-phone standard globally.
Still, Ericsson said margins at its services business are stable, despite a negative impact from start-up costs related to large recent contracts from operators including U.S.-based Sprint Nextel Corp., and it said that services demand remains strong.
The company's operating margin, excluding restructuring charges and its share in joint ventures, improved to 11.7% from 11.5%.
Reduced investments among telecommunications operators and increasing competition from China's Huawei Technologies Co. and ZTE /zigman2/quotes/205359573/delayed HK:763 -2.44% Corp. have hit European equipment vendors in 2009. Ericsson's sales have so far this year been helped by the weak Swedish krona, which has, however, appreciated around 10% against the U.S. dollar over the past three months.
Last week, Ericsson's rival Nokia Siemens Networks, a joint venture between Finland's Nokia Corp. and Germany's Siemens /zigman2/quotes/200873563/delayed DE:SIE +0.12% AG, posted declining third-quarter sales but said it now expects the mobile infrastructure market to fall only 5% in 2009, compared with previous expectations for a 10% drop.
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