Ericsson AB will raise 30 billion kronor (US$2.9 billion) selling shares and slash a fifth of its workforce as clients curb spending.
The stock of the world's biggest maker of mobile-phone networks dropped 24 percent. Ericsson had a first-quarter loss of 3.7 billion kronor, or 0.38 krona a share, after posting a profit in the year-earlier period, spokesman Mads Madsen said.
Stockholm-based Ericsson said it no longer expects spending by phone companies to revive in the second half of this year, joining rivals such as Nokia Oyj in scaling back forecasts for the industry. Chief Executive Officer Kurt Hellstroem, who predicted a second straight annual loss, plans to cut 17,000 jobs by the end of 2003.
"Ericsson is doing the only thing it can in a rotten market -- cutting costs," said Anders Jarheim, who helps manage US$1.7 billion in stocks, including Ericsson, at Oehman Fondkommission.
The shares posted the biggest decline in at least 11 years, dropping as much as 8.6 kronor to 27.3, a five-year low.
They're down 51 percent this year, after losing almost half their value last year. Shares of other phone-equipment makers including Alcatel SA and Siemens AG also slid.
The company plans to sell shares to existing investors, probably by the end of the third quarter, Ericsson said. Investor AB and Industrivaerden AB, the biggest shareholders based on voting rights, support the offer.
Morgan Stanley, Enskilda Securities, Goldman Sachs International, Handelsbanken Securities and Schroder Salomon Smith Barney have been appointed as financial advisers for the rights offer.
Mounting debt and slowing economic growth have prompted phone companies to rein in network spending. Ericsson and rivals such as Alcatel, Nortel Networks Corp, and Lucent Technologies Inc. have slashed more than 150,000 jobs after sales plunged. Nokia slashed its 2002 sales forecasts last week.
Ericsson will reduce costs by 10 billion kronor this year and as much in 2003, on top of the 20 billion kronor in cost cuts announced last year, Hellstroem said in an interview. The company will eliminate jobs in Sweden and abroad.
"Our customers aren't ordering," Hellstroem said. Last year's decline in demand "is extending. We don't see an upturn."
The company's clients include Vodafone Group Plc, Europe's biggest cellular-phone operator, and Telefonica SA.
Hellstroem didn't estimate the size of this year's loss. He earlier predicted a 2002 operating profit of 5 percent of sales, a goal investors had said since the beginning of the year he wouldn't reach. The company now expects to return to profit some time next year, after posting its first annual loss in more than half a century last year.
Industry sales of mobile networks will fall more than 10 percent this year, Ericsson said. Hellstroem declined to say how much Ericsson's sales will fall.
The company's total orders fell to 37.7 billion kronor in the first quarter from 75.5 billion kronor in the year-earlier period. Sales slid 26 percent to 37 billion kronor, missing analysts' estimates.
Ericsson's main business, which makes gear that directs cellular and traditional calls, had an operating loss of 2.9 billion kronor, compared with a profit in the year-earlier period.
Analysts polled by SME expected a loss of 1.53 billion.
Sony Ericsson Mobile Communications Ltd, a handset venture with Sony Corp that started in October, broke even in the quarter. Analysts had expected a loss of 591 million kronor.
Ericsson doesn't consolidate sales at the unit.
The company's "other operations," which include cables, semiconductors and the part of the handset business that wasn't transferred to the Sony venture, lost 1.3 billion kronor in the quarter, less than analysts had expected.
Ericsson still plans to sell units such as the semiconductor business and its cable equipment division if it can find buyers, Hellstroem said.
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