Ericsson Gross Margin Lower

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Ericsson reported a below-consensus fourth-quarter gross profit margin as the rollout of more mobile networks added to costs, sending its shares down despite strong orders. Ericsson reiterated its forecast of "slight" 2005 market growth in dollar terms, as expected, and proposed to pay a dividend of 0.25 crown per share for 2004, its first payout since 2000.

Ericsson's gross margin, a measure of how it handles costs in relation to sales, was 45.6 percent, below expectations of 47.3 percent and down from 47.1 percent in the third quarter, though it was up from 41.6 percent the year before.

Ericsson shares, which have gained 5.8 percent since the company's last quarterly report on October 22, traded 5.9 percent down in Stockholm at 5:40 a.m. EST. Since October the share has performed roughly in line with the sector index.

Investors worry that pressure on price and profit margins will continue, because market growth is set to slow down, and wireless companies will fight for orders with price cuts.

For the full year, Ericsson's mobile networks sales rose 20 percent, beating its closest competitor and arch rival Nokia, which saw sales increase by 13 percent. But Ericsson forecast that market growth will not be higher than 5 percent in 2005, after the exceptionally strong 2004 when mobile carriers carried out long overdue capacity expansions.

Orders, a key indication of future sales, were 37.9 billion crowns against expectations of 33.6 billion. First-quarter sales would ease in line with normal seasonality. Ericsson's total sales were 39.4 billion crowns, beating consensus of 38.7 billion, and up from 36.2 billion in 2003. Pretax profit was 9.3 billion crowns against expectations of 9.4 billion and up from 5.9 billion a year earlier.

Ericsson reiterated its forecast that its operating margin, at an expected 24 percent in the fourth quarter, would stay "at least in the high teens" over the next few quarters. That compares with 16.4 percent the year before.