The global downturn finally caught up with top mobile network gear maker Ericsson, with missed forecasts and a drop in third-quarter sales posing a challenge for its incoming chief executive.
Shares in Ericsson had tumbled 8 per cent to 68.10 crowns by 0915 GMT, casting a shadow over those of smaller rival Alcatel-Lucent, which dropped 3 per cent.
The Swedish company had so far proved resilient to the global financial crisis, managing to maintain profits and sales, but the worst economic crisis in decades finally caught up with it as capital spending cuts by operators fed through.
"We said (nine months ago) that it's unreasonable to think we won't get affected," said chief executive Carl-Henric Svanberg, who added that falling sales were the result of telecom operators cutbacks earlier in the financial crisis.
"Now of course I think everybody understands that we are on our way into safer territory, but ... it takes a while before operators start planning projects and start getting projects on board again for us," said Mr. Svanberg, who will leave the company at the end of the year.
Stiff competition from Chinese vendors Huawei and ZTE has added to the effects of the financial crisis for some equipment suppliers.
Last week Nokia took a €908-million ($1.4-billion) writedown at its Nokia Siemens Networks joint venture, a direct competitor to Ericsson, and said it was losing market share.
Mr. Svanberg said Ericsson had taken market share in the July-Sept period.
Ericsson is coming to the end of a 10-billion Swedish crown ($1.45-billion) cost-cutting program, and incoming chief executive Hans Vestberg, currently the company's chief financial officer, said this would be extended, given the current market problems, though he gave no figures for expected savings.
"We will see some more efficiency gains going through," he said. "The main part has been done and the main part that will come is already in the plans we have internally."
Ericsson's third-quarter sales fell 5.6 per cent to 46.4-billion crowns from 49.2-billion a year ago, missing all forecasts in a Reuters poll of 36 analysts, which ranged from 47-billion to 56.8-billion.
Operating profit was 5.5-billion Swedish crowns ($795-million), excluding restructuring charges and its loss-making joint ventures, down 3 per cent from a year ago, and missing the 5.8-billion average poll forecast.
"Top line is so much below our expectations that it will set the tone for the day. Ericsson says it's a tough market, and this creates concerns over demand," said Swedbank analyst Hakan Wranne.
Sales at Ericsson's key network equipment unit slipped 8 per cent year-on-year.
Sales at Ericsson's Professional Services unit and Multimedia units also lagged analysts' mean forecast.
Mr. Svanberg said conditions were difficult in emerging markets, though economies such as China, India, the U.S. and Japan were stronger.
Ericsson has consistently declined to give a market outlook.
In its third-quarter report, Nokia Siemens Networks was less gloomy than it had previously been. It now sees a decline in the equipment market of around 5 per cent in euro terms in 2009, compared with its earlier prediction of a 10 per cent decline.