Stockholm shares sharply lower late morning; Ericsson dives after profit warning

Stockholm shares sharply lower late morning; Ericsson dives after profit warning

	Published : Tue, 16 Oct 2007 10:03 By : Agencies Print this Story

STOCKHOLM (Thomson Financial) - Stockholm shares were lower in midmorning trade, as Ericsson -- Sweden's biggest company by market capitalisation -- fell over 25 pct after a profit warning.

At 11.00 am, the OMX Stockholm index was down 3.35 pct at 389.41, while the OMX Stockholm 30 was 3.91 pct lower at 1,200.77. Turnover amounted to 24.52 bln skr.

Ericsson B was down 27.67 pct at 19.08. Ericsson dived after it slashed its third- and fourth-quarter earnings and margins guidance due to a shortfall in revenues from mobile networks, with market players expressing anger at Ericsson management after the company's recent upbeat London conference.

Ericsson said it now expects to achieve third-quarter operating profit of 5.6 bln skr, sales of 43.5 bln skr and a gross margin of 35.6 pct.

Analysts consensus forecasts were for a third-quarter operating profit of 9.14 bln skr, sales of 45.42 bln skr and a gross margin of 42.8 pct.

Price pressure throughout the market and lower margins in the emerging Indian market are behind the warning, said analysts, with Alcatel-Lucent in particular seen to be pressuring prices.

'Besides India, if you look at Alcatel-Lucent, Siemens and Nokia, they are doing very poorly, so they are desperate to get into the game and are very willing to lower prices,' said Greg Johansson, Ericsson analyst at Redeye, 'So basically all the big competitors to Ericsson are in a price cutting mode.'

Another analyst said: 'Indirectly, this is a profit warning for 2008 as well. I will be lowering my EBIT result by 10 bln skr for full-year 2008 due to the weaker margins.'

'The confidence in Svanberg and the whole management team is now zero,' he added. 'I'm really hoping that they are going to switch their CEO to someone else.'

Elsewhere, Investor B was down 3.99 pct at 168.50 and Industrivaerden down 3.81 pct at 139. Ericsson corresponds to about 12 pct of Investor's and 13 pct of Industrivaerden's market cap.

Among the telecom operators, TeliaSonera was flat at 57 and Tele2 B was up 0.88 pct at 143.25.

SKF B was down 3.19 pct at 136.25, after reporting slightly weaker-than-expected third-quarter results, but with the outlook slightly more positive than the one in the second-quarter report.

For the fourth quarter, the ball-bearing manufacturer said it sees higher market demand for its products and services, with demand significantly higher in Asia and Latin America and relatively unchanged in North America.

The Latin America guidance was the only major change from its previous outlook after the second-quarter report.

'Volume growth was good, and this is important. Margins were weaker in the industrial division but this is due to lower leverage due to rising input costs,' Peder Froelen at Handelsbanken said. 'I would rather have strong volumes and weaker margins than the opposite since this can be explained (by rising input costs).'

'On the whole the report was marginally negative, but they also slightly upgraded the outlook due to Latin America,' he added.

Mats Liss at Swedbank said the report was 'mixed'.

'The outlook is positive, but the results were a bit weaker. Higher raw materials costs are tough to handle,' he said.

Among other heavily traded shares, Volvo B was down 1.41 pct at 122.25, Handelsbanken A was up 0.50 pct at 199 and Atlas Copco A was down 0.85 pct at 116.25.

TFN.Stockholm@thomson.com

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