Ericsson's quarterly profit plunges 70 percent

STOCKHOLM, Sweden (AP) -- Sweden's Ericsson on Tuesday posted a 70 percent plunge in second-quarter profit, mainly citing recent acquisitions and high development and restructuring costs.

The world's No. 1 wireless equipment maker reported profit of 1.9 billion kronor ($320 million), down sharply from 6.4 billion kronor in the same quarter last year.

Sales in the three-month period ended June 30 rose two percent to 48.5 billion kronor ($8.1 billion), up a tad from 47.6 billion kronor in the corresponding period in 2007.

The Stockholm-based company reiterated its outlook for the year, saying it expects a "flattish mobile infrastructure market in 2008."

Development costs weighed heavily on the result, rising 24 percent in the quarter from the same three months a year earlier.

Some 1.8 billion kronor ($302 million) in restructuring costs were recognized in the period as part of the company's plan to cut expenses by 4 billion kronor ($672 million) a year. The plan will lead to thousands of layoffs worldwide.

Gross margin, or the profit received between the cost of a product and the selling price, also shrank, to 35.7 percent from 43 percent.

Ericsson was also hit by weaker earnings in its Sony Corp. joint venture, Sony Ericsson, which failed to contribute much to profits in the quarter. Last week, the co-owned company reported a 97 percent drop in second-quarter earnings as tougher market conditions hurt its sales.

Despite the drop in profits, Ericsson CEO Carl-Henric Svanberg said the company's "overall business activity showed stable development."

Sales had picked up some more in the U.S., Ericsson said, while Western Europe "remained slow."

Shares in Ericsson have received a beating since October when it made a hefty profit warning and cut its outlook for 2007.

Declining profits in Sony Ericsson have also helped wipe out large parts of its share value.

Sydbank analyst Jacob Pedersen said the figures, at first glance, looked "quite good."

"It seems like Ericsson is able to stabilize the development," he said.

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