Ericsson hit with manufacturing blues
Pete Peterson, analyst, Prudential Securities
Ericsson stock bottomed out with a new 52-week low of $11.44 near the opening of trading on Monday, but it rebounded slightly and traded at $11.75 later in the morning. The stock is down 20.68 percent for the month and 28.45 percent for the year.
Ericsson announced Friday that annual operating profit will be 6 percent to 7 percent of sales, below an earlier estimate of 10 percent. Ericsson said sales in the fourth quarter will rise about 10 percent, while it forecast an operating margin of 1 percent. Ericsson also announced on Friday that third-quarter pretax profit jumped 14 percent.
The third largest maker of mobile phones blamed its shortfall on the success of handset rivals Nokia and Motorola. Ericsson executives said Friday they plan to move Swedish and U.S. phone production to lower-cost factories in Latin America, Eastern Europe and Asia to free up plants for networks, prompting speculation that it may stop making phones altogether.
Ericsson's phone unit, which accounts for roughly 20 percent of total revenue, had an operating loss of $405 million in the third quarter. It will lose $997.8 million in the fourth, according to Ericsson executives.
Based on those losses, Salomon Smith Barney, Merck Finck, Lehman Brothers and J.P. Morgan downgraded their ratings on Ericsson Monday. First Union Securities reiterated a tepid "market perform" rating. Credit Lyonnais, KBC Securities France and Deutsche Bank cut earnings per share estimates for the year.
Analyst Mark McKechnie at Banc of America Securities maintained his "buy" rating but slashed his 12-month price target to $15 from $25 per share. Analyst Angela Dean at Morgan Stanley Dean Witter maintained her "outperform" rating but slashed her 12-month price target to $15.80 from $22.23 per share.
Analysts Kulbinder Garcha, Sean Faughnan and Eiji Aono at Goldman Sachs kept Ericsson on their "recommend" list but lowered their price target to $17.78 from $21.74 per share.