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Tuesday, February 18, 2003

Telecom Pain: No End In Sight

One of the things which makes the 'rosy future just around the corner' story still hard to swallow is the continuing poor outlook for some key technology players, and high among these the telecom supply industry. The latest results and forecasts from Ericsson only confirm this trend. Don't the days when Sweden and Finland's futures seemed to shine so brightly through the reflected rays of Nokia and Ericsson now seem so far away. Whatever happened to the idealism of our youth?

The severe plight of Ericsson, the Swedish telecom equipment group, was underlined on Tuesday when its credit rating was lowered further into junk territory due to concerns about the sharp plunge in its revenues and the need for further cost-cutting. Moody's, the credit rating agency, said there was no sign in Ericsson's position stabilising and it faced a bleak 2003 as revenues continued to fall, cash poured out of the company, and further restructuring measures were implemented. It also noted that Sony Ericsson, Ericsson's handsets joint venture with Sony of Japan, faced "a challenging path to cash flow break-even", even though the venture is financially stronger after a recent €300m cash injection from its parents.

Ericsson has already carried out a series of restructuring programmes since the downturn in the telecommunications equipment industry, caused by spending cutbacks by operators, began in early 2001. Nearly 45,000 staff have been cut since the start of 2001, when the group had 107,000 employees. Ericsson itself has said it will end 2003 with fewer than 60,000 staff, but analysts believe further cost-cutting could take the figure below 50,000 during the course of next year. Moody's said it was still hard to tell when operator spending might pick up. It noted Ericsson's revenues fell sharply in the fourth quarter and were continuing to fall at around 30 per cent. "Ericsson's revenues may continue to decline by more than 30 per cent through the most part of 2003. A stabilisation may not set in before next year," it warned. Such a scenario would lead to the need for further restructuring measures, which "because of their severity, carry material execution risk," it added. The group could also face a high cash burn rate because the potential for further cuts in working capital was limited, it said.
Source: Financial Times

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