Ericsson calls for £2bn bailout

TELECOMS equipment giant Ericsson is turning to shareholders to bail it out of its current troubles with a 30bn kronor (£2.04bn) rights issue. News of the surprise capital raising, coupled with larger-than-expected losses and a forecast that the Swedish group was at least another year away from returning to profit, delivered another body blow to beleaguered telecom stocks across Europe today.

Ericsson's shares sank to their lowest since January 1997, falling 21% to 28.20 kronor. Ericsson had a first-quarter pre-tax loss of 5.4bn kronor against market forecasts of 4.9bn kronor as its sales slumped 26% to 37bn kronor. First-quarter orders dropped by 40%.

Ericsson said the group's two largest shareholders, Investor and Industrivarden, which control almost 70% of the voting rights and 7% of the equity, supported the new share issue, which should be completed in the next few months. Details and price were not disclosed.

Ericsson plans to cut up to 20,000 more jobs over the next two years in a bid to slash its annual costs by 10 billion kronor. It shed 22,000 jobs, or about a fifth of its workforce, last year in the face of dwindling demand.

The company today forecast that the telecoms industry would remain in recession for the 'foreseeable future', adding: 'As many operators have recently announced reduced investment plans, we now believe that market conditions will remain weak well into next year. With our revised view of the outlook for the market in which we operate, we now expect to make a loss this year, excluding restructuring costs and non-operational items. With ongoing cost cutting, we plan to manage the business to return it to profit at some point in 2003.'

Chief executive Kurt Hellstrom said the rights issue was needed to give the group enough financial security to withstand a further prolonged downturn in the industry.

The only bright spot was Ericsson's new mobile phones joint venture with Japan's Sony, which is already breaking even. It shipped 5.8m phones and generated sales of 10.3bn kronor.

Ericsson said it believed that globally 85m handsets were shipped in the first quarter and that between 400m and 420m would be sold this year. The forecast tallies with that of bigger Finnish rival Nokia, which warned on mobile sales last week.