Cost cuts boosted the first-quarter gross margin at Ericsson above its own forecasts, the Swedish telecoms equipment maker said on Thursday, sending its shares sharply higher.
The world's biggest maker of wireless network components said the margin, the widest measure of how a company manages costs in relation to sales, would be higher than the 41.6 percent seen in the fourth quarter, despite a slowdown in sales.
Sales traditionally drop at the start of the year compared with the usually strong fourth quarter, when telecoms operators spend leftovers from their annual budgets.
"The main reason for the improvement is better-than-anticipated benefits of cost of sales reduction activities," Ericsson said in a statement. In February Ericsson had said the margin could deteriorate slightly.
The statement prompted Merrill Lynch to raise Ericsson's 2004 earnings forecast by 24 percent to 1.03 crowns per share and the 2005 forecast by 23 percent to 1.17 crowns. The bank now expects the gross margin this year at 44.4 percent.
Ericsson reiterated that revenues would rise moderately year-on-year but would decline against the seasonally strong October-December period. In February Ericsson quantified moderate year-on-year growth as a five to 10 percent increase.
Ericsson, which will report first-quarter results on April 23, has been cutting costs and shedding staff to adjust to a shrinking market since 2001 and only returned to profit in the third quarter of 2003 after nearly three years of losses.