Ericsson Blows Away Wall Street Estimates
By Matt Paolucci

Telefon AB L.M. Ericsson (ERICY), the Swedish telecom equipment maker, said its first-quarter pretax profit soared roughly 370 percent, blowing by analysts' expectations, as sales ballooned and expenses fell.

The world's No. 3 cellular-phone maker said income before tax rose to $682.7 million from $145.5 million in the first three months of 1999, well ahead of expectations of $492 million.

Ericsson's first quarter sales rose 42 percent to $6.61 billion from $4.65 billion, and orders jumped 67 percent to $8.89 billion from $5.32 billion.

This growth was mainly driven by a strong development for mobile systems, where orders increased by 86 percent, and by a favorable development also for wireline systems, with orders up 47 percent.

Earnings per share advanced more than 330 percent, to roughly 24 cents per share from 5.5 cents per share. Estimates were for 17 cents per share.

Shares of Ericsson were up fractionally at $90.13 in afternoon trading.

Ericsson's fantastic results were also due in part to slower growth in operating costs and a one-off gain of $117 million from the sale of part of the company's stake in Saraide, sold to Infospace.

"This quarter shows Ericsson's clear lead in mobile Internet including third generation (3G), which is beginning to take off," Ericsson's president, Kurt Hellstrom, said. "Profits in our largest segment, Network Operators, again improved sharply."

Operating margins, a measure of profitability, also beat expectations rising to 10.8 percent from 4.3 percent.

Ericsson said it expects sales for the 2000 year to rise by more than 25 percent, ahead of its earlier forecast of more than 20 percent growth. For the second quarter, the Swedish company said it expects income before taxes to be double the level reached in the second quarter of last year.

Ericsson is the world's leading supplier of mobile-phone infrastructures, a market that's booming as the number of cell-phone users swells. With General Packet Radio Service (GPRS) networks being rolled out and 3G cell-phone technology being developed, both will allow cell-phone users high-speed Internet access through their phones.

Analysts predict more good times for the likes of Ericsson and Finnish rival Nokia (NOK).

"We have captured more than 50 percent of the strategically important GPRS orders both in terms of numbers of contracts and subscribers," Hellstrom said.

Mobile systems now represent 53 percent of Ericsson's total sales. Sales of consumer products such as cell-phones rose 53 percent. But operating margins on cell-phones remained weak at 3 percent. Unit sales advanced 57 percent to 10.5 million handsets. Unit volumes for cheaper phones grew faster, resulting in an unfavorable product mix, Ericsson said.

The company estimates there'll be 1 billion cell-phone users worldwide by 2002 and more than 600 million mobile Internet customers by 2004.

Ericsson said it expects profit to grow as more people access the Internet through wireless systems. "We think that the fastest-growing area of mobile communications is going to be just what we call mobile Internet," Hellstrom added.

Mr. Hellstrom said mobile Internet systems will be Ericsson's main focus over the next five years, but that it also will develop "mobile devices of all kinds," including networks, services and applications.