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Ericsson dives on profit warning

Ericsson (Nasdaq: ERICY) announced Friday a higher than expected loss on its handsets business and issued a weak outlook, in what analysts said amounted to a profit warning.

Shares in the Swedish telecoms equipment maker fell 2 to 12 Friday morning. A strong third quarter earnings report from Nokia (NYSE: NOK) Thursday lifted Ericsson and Motorola (NYSE: MOT) along with most other wireless handset and chip makers. Nokia gave a rosy outlook for the next quarter and 2001, and said the handset market was booming, surprising investors who thought the wireless market was in for a downturn. Motorola shares were down 0.75 to 22.25.

Turns out the good times were just a Nokia thing. Although Ericsson beat expectations by more than tripling its nine-month pre-tax profit to $2.39 billion, citing booming sales of its key networks unit, it cut its sales and margins outlook for 2000 for the whole company and forecast a loss from its handsets twice as much as expected. The company said it reacted to growing losses in its mobile handset unit by shifting resources to its highly profitable networks business.

Ericsson was reiterated "buy" by analyst George L Smith at Davenport & Co.

Analyst Timothy Luke at Lehman Brothers downgraded the stock to "outperform" from "buy."

Matt Hoffman, analyst for Wit Soundview maintained his "strong buy" rating on the stock, saying it was still a good infrastructure story.

In a separate release Friday, the company said it won a $1.35 billion order from MobilCom AG for equipment that allows mobile phone users to connect to the Internet.

The company also announced it will move mobile phone production from Kumla, Sweden and Lynchburg, USA to other suppliers as it prepares for strong demand for its 3G systems. The capacity freed up in Kumla and Lynchburg will be needed for the production of mobile telephone systems. In conjunction with the move, the Lynchburg operation will be acquired by SCI Systems, Inc. (NYSE: SCI).

"Ericsson must prepare for the tremendous growth that we foresee in the 3G market over the coming years. We must also give top priority to restoring profitability in Ericsson's mobile phone business,'' said Kurt Hellstrom President of Ericsson, in the company's release.