Ericsson, the Swedish telecoms firm that employs 1,800 staff in the Republic, is about to get $3.2 billion from a rights issue but the loss-making firm may need more to keep it on course, analysts said yesterday.
The firm, which has been engaged in a major restructuring over the past year-and-a-half, will close the complicated rights issue later today. Explaining the low Skr3.8(€0.42) price was hard enough and now Ericsson will need to show the financial community how long the money will last.
Analysts and investors applauded the company's cost-cutting goals, but were quick to point out that Ericsson has proved an impossible optimist in the past, misreading the market trend.
"The 2003 forecast that it will return to profitability cannot be taken as gospel. They said exactly the same this time last year," said Mr Philip Sparks, analyst at investment bank HSBC in London.
Ericsson has changed from the company it was a year ago. It has cut staff numbers from a bloated 107,000 in early 2001, and aims to employ under 60,000 by end-2003. It is also concentrating on its core activities.
Yesterday its Irish operation announced that it had successfully outsourced its IT support function for the Ericsson workforce from internal staff to EDS.
Ericsson is aiming for break-even on sales of Skr120 billion crowns by the end of 2003 from Skr180 billion now - sales were Skr75.5 billion in the first half.
This ambition would be fine if markets looked set to stabilise. However, a fresh wave of profit warnings indicate the telecoms equipment market continues to head south.
Ericsson has forecast a 15 per cent decline in sales this year and is banking on steady sales in 2003.
An indication of where others think the market is heading is given by some of its competitors in the troubled telecoms equipment industry.
US-based Lucent is aiming at fewer than 45,000 staff compared with 106,000 in early 2001. Canada's Nortel, once a shining star in fixed and mobile networks, said last week it was scrapping another 7,000 jobs to reduce the total number of workers to just over a third from two years ago.
Nortel's latest woes "shows us the company is not yet seeing any light at the end of the tunnel", said Merrill Lynch analyst, Mr Thomas Astle. Unlike Ericsson, which is a pure wireless infrastructure player that builds one in every three mobile phone network stations, Nortel and Lucent are exposed to the even harder-hit wireline infrastructure market. But the common denominator is that all telecoms operators are cutting spending to save cash. Most analysts expect investments in wireless infrastructure to decline 10 to 15 per cent or more this year. - (Additional reporting by Reuters)
