Ericsson missed market forecasts for second-quarter earnings as its multimedia drive produced disappointing results and revenue in its key European market stagnated, sending its shares down 5 percent.

But the world's biggest maker of mobile phone network equipment said on Friday it continued to outperform the market and was encouraged by robust revenue in the Asia-Pacific region.

Pretax profit rose 12 percent to 9.3 billion Swedish crowns ($1.4 billion), missing the average forecast of 9.8 billion crowns in a Reuters poll of 37 analysts. Sales rose 8 percent to 47.6 billion crowns, just missing a 47.8 billion forecast.

Chief Executive Carl Henric Svanberg told Reuters Ericsson was winning business from rivals in virtually every area. Seen in general, in all areas and just about everywhere, we are taking market share, he said after a presentation on the results.

By 0925 GMT, Ericsson shares traded down 5 percent at 26.52 crowns, the biggest decliner among Swedish blue chips as the main index fell 0.74 percent.

Analysts said they had expected more from Ericsson's push into the multimedia market, which it has boosted with acquisitions such as a $1.4 billion purchase of Norwegian Internet TV company Tandberg Television.

Overall, it's slightly disappointing, said WestLB analyst Thomas Langer. Sales were pretty okay but the standout weakness was the multimedia division.

He added: We see here the first effects of the consolidation of Tandberg but even without those effects revenues and margin were a bit weak.

Svanberg told a news conference he had also expected more from Ericsson's multimedia unit, which posted a 6 percent rise in sales to 3.6 billion crowns, but said the unit would develop well in the long term.


Ericsson repeated its forecast that growth in the GSM/WCDMA market -- second- and third-generation mobile technology -- would be in the mid-single digits in 2007.

GSM shipments reach new record levels every quarter and we continue to see growing demand for mobile and fixed broadband, Svanberg said in a statement.

Worldwide GSM mobile subscriptions recently passed the 3 billion mark.

But the telecoms equipment sector is settling down after a series of multi-billion-dollar mergers precipitated by a prolonged spending downturn by telecoms operators.

Restructuring programs at newly merged rivals Nokia Siemens Networks and Alcatel-Lucent have allowed Ericsson to steal market share by aggressively undercutting prices.

Alcatel-Lucent posted an operating loss in the first quarter, hit by the cost of its $13.4 billion transatlantic merger, and it expects full-year sales to grow only in line with the market.

Ericsson's sales in Asia-Pacific climbed 32 percent from a year earlier but revenue in Europe during the quarter was flat and it was down 18 percent in North America.

Ericsson also said cash flow from operations, which had been declining for several quarters, rose to 4.2 billion crowns from 0.2 billion a year earlier.

As the Sweden-based company has relied more on large turnkey projects, its cash flow as a percentage of earnings has skidded, introducing an element of uncertainty for the stock market.

Ericsson said its services division, which analysts say is increasingly driving earnings, showed 11 percent growth.

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(Additional reporting by Georgina Prodhan in Frankfurt, Anna Pettersson, Helena Soderpalm, Charlotte Nilsson, Emma Bengtsson and Simon Johnson)