Ericsson's cautious outlook takes shine off shares

By @ibtimes on

Ericsson, the world's biggest mobile network equipment maker, gave a cautious outlook on Thursday which sent its shares lower even though the firm stuck to sales and profit growth targets for the next three years.

Optimism about growth at Ericsson has been growing since last year and was fueled further by first quarter earnings that trounced market expectations due to strong growth in mobile broadband.

The $220 billion tech gear and services market picked up in the second half of last year as operators boosted spending to meet soaring data traffic from smartphones, tablet computers and mobile Internet users.

However on Thursday Ericsson said it expected its core mobile networks market to grow 6-8 percent a year in the 2010-2013 period, while the total network market would show 3-5 percent compound annual growth over the same period.

The rare outlook -- given at an investor briefing by management in New York -- implies a sharp slowdown after what is expected to be a strong 2011.

Ericsson shares, which have risen 22 percent this year, slipped after the statement, down 1.4 percent at 94.50 crowns by 1520 GMT (11:20 a.m. EDT). The European technology stocks index was down around 0.5 percent.

People think the equipment market growth expectation is a bit cautious, said a trader who declined to be identified.

In the first quarter, sales rose 17 percent, with network sales up 35 percent against the year earlier period, despite strong currency headwinds.

UNCHANGED TARGETS

Despite the subdued outlook, Ericsson stuck by its targets of growth of 4-10 percent in net sales and 5-15 percent in operating income on a compound annual basis over 2010-2013.

Chief Executive Hans Vestberg said growth would come from different areas: market growth, growing market share and M&A.

He said mobile broadband subscriptions, set to reach around 5 billion by 2016, would drive market growth.

Ericsson also plans to further build its presence in fast-growing markets like the United States, Korea and Thailand and wants to take a greater share of operators capital and operating expenditures, Vestberg said.

He said Ericsson would be active in adding new businesses where it sees gaps in its portfolio and would push into new areas, such as machine to machine communication, and outside the core telecoms sector to utilities, health and transport.

We believe we have a good portfolio and good assets, Vestberg said.

(Additional reporting by Anna Ringstrom; Editing by Will Waterman and Sophie Walker)

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