Ericsson, the world's biggest maker of equipment for mobile phone networks, stunned markets with a 50 percent drop in quarterly profit, adding to signs from the corporate world that economic growth may be grinding to a halt. Shares in the Swedish company dropped 15 percent to a three-year low after it reported fourth-quarter profits below even the gloomiest forecasts and warned telecoms operators were likely to remain cautious on spending in the months ahead.
"It is hard to find anything positive," said Jyske Bank analyst Robert Jakobsen. "The company has indicated there would be a slowdown, but this is much worse than expected." The gloomy news from Ericsson adds to signs from the latest round of quarterly company results that the euro zone debt crisis has triggered a marked slowdown in economic activity.
On Tuesday, Europe's top engineering conglomerate Siemens posted a steep fall in core profit, while Swiss drugmaker Novartis said on Wednesday it was braced for lower profitability this year. Telecoms operators invested heavily through most of 2011 to upgrade networks to cope with surging data traffic from smartphones and tablets and some slowdown had been anticipated, particularly in the United States.
But sales in Ericsson's key networks unit fell 9 percent year-on-year and profitability was half the level it was a year ago as operators economised and low margin business took a greater share of sales. "If you look out in 2012 a little bit, you will probably see some more cautious operators," Ericsson chief executive Hans Vestberg said, adding margins would remain under pressure.
But he also said the underlying drivers of growth remained. "Consumers are calling equally as much ... they are using even more services on their iPads or their smartphones in the mobile networks...that has not changed," he said. At 1140 GMT, Ericsson shares were down 14.5 percent at 58.55 Swedish crowns, the biggest fall by a European blue chip stock.
Ericsson's results also pushed down shares in smaller rival Alcatel-Lucent around 10 percent while Germany's Siemens, owner of half of network firm Nokia Siemens Networks , was down nearly 5 percent.
Earnings before interest and tax, excluding Ericsson's loss-making joint ventures but including restructuring charges, were 4.1 billion Swedish crowns ($605 million), missing all forecasts in a Reuters poll, which ranged from 5.8 billion to 9.4 billion. Sales, at 63.7 billion crowns, were also well below the forecast of 67.2 billion, as was Ericsson's gross margin which came in at 30.2 percent against the projected 33.7 percent.