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STOCKHOLM—Ericsson AB, the world’s largest maker of
wireless-network equipment, is riding a wave of spending
as carriers worldwide beef up systems to send video to
mobile phones.
Investors
have ignored surging multimedia revenue at Stockholm-based
Ericsson. Sales at the unit may climb 14 percent this year
to 19 billion kronor ($3 billion), 9.8 percent of total
revenue, estimates Swedbank analyst Haakan Wranne in
Stockholm, who says clients should buy.
Consumer
demand for videos on-the-go may help reverse the 41
percent fourth-quarter collapse that made Ericsson the
biggest loser in the FTSE Eurotop 100 Index in 2007. The
shares may climb 53 percent to 21.73 kronor this year,
according to a Bloomberg survey of 28 analysts, beating
last year’s advance at Google Inc., owner of the world’s
most popular search engine.
Ericsson
fell after chief executive officer Carl-Henric Svanberg
angered investors by making two disappointing sales
announcements last fall. “The drop in the stock is well
deserved,’’ said Michiel Plakman, a fund manager in
Rotterdam at Robeco Group, which oversees $15 billion
including Ericsson. He said he may buy more because “it
looks undervalued.’’
Svanberg
said in October Ericsson would miss third-quarter sales
estimates after earlier predicting “strong’’ industry
growth. In November, he said fourth-quarter sales would be
at the bottom end of the company’s forecast of 53 billion
kronor to 60 billion kronor given the month before.
Ericsson’s
decline has erased $31 billion in value the past three
months, more than the combined market capitalization of
competitors Nortel Networks Corp. and Alcatel-Lucent.
Ericsson,
which earned the equivalent of $4.1 billion in the past
four quarters, trades at 9.6 times estimated 2008
earnings, according to Bloomberg data. That’s below the
10.4-times multiple for Alcatel Lucent, which lost $2.3
billion in the same period. Ericsson gained 3.8 percent to
14.71 kronor in Stockholm trading.
“The share
movement was exacerbated by the way the management handled
the information,’’ said Carina Lundberg Markow, head of
investment at Folksam in Stockholm, which manages the
equivalent of $34.4 billion and holds 1 percent of
Ericsson stock. “They need to be transparent, consistent
and very honest, so that one can trust the information
they’re giving.’’
Ericsson,
near a four-year low, may not win back investors until the
second half of 2008, said OKO Bank analyst Hannu Rauhala
in Helsinki, who advises clients to hold. The company’s
“market share is good. The basics are solid,’’ Rauhala
said.
“Nothing
drastic has changed.’’
Sales of
video phones made by Apple Inc., Nokia Oyj, Samsung
Electronics Co. and Sony Ericsson Mobile Communications
are driving demand for bandwidth, or the amount of
information that can be transmitted at one time over a
network.
Data may
account for 28.4 percent of the mobile service market in
2011, up from 17.5 percent in 2007, researcher Gartner
Inc. estimates.
Phones
that download music, deliver street maps and send
documents, such as Research In Motion Ltd.’s BlackBerry,
also require more room on networks than voice calls and
text messages. The number of consumers using e-mail phones
may jump eightfold in four years to 300 million, according
to RBC Capital Markets analyst Mike Abramsky.
“Growth is
going to come to a point where the operators actually
start to need more data capacity,’’ said Nomura
International analyst Richard Windsor in London. When they
start placing more upgrade orders, “Ericsson’s fortunes
will actually start to turn around.’’
Ericsson
received orders in the past year from Madrid-based
Telefonica SA for high-speed wireless networks in Uruguay
and Germany. Under an extended contract, Ericsson will run
London-based Vodafone Group Plc’s Dutch mobile network
through 2012 and expand high-speed systems in Spain. Terms
of the agreements weren’t released.
The gains
in data sales are a “real trend,’’ Vodafone CEO Arun Sarin
said in November. “Mobile data is a permanent phenomenon
now. We expect data to generate attractive growth rates in
the years ahead.’’
Svanberg,
55, created a multimedia division one year ago, making
acquisitions including Tandberg Television ASA. He
replaced his chief financial officer in October and said
in November that the first quarter “could very well be the
low point of how things develop.’’
Ericsson
may say on February 1 that fourth-quarter profit fell 41
percent to 5.7 billion kronor, the average estimate of 13
analysts, as sales rose 3 percent to 55.1 billion kronor.
The
operating profit margin may widen in the second half,
Svanberg said on November 20. He declined to be
interviewed for this article, Ericsson spokesman Fredrik
Hallstan said.
In
October, Svanberg attributed the third-quarter sales miss
to slowing growth in network spending in Europe and North
America. In November, he blamed a declining US dollar and
unrest in Pakistan for weakening fourth-quarter sales.
Swedish
investors and traders expect the dollar to strengthen
against the krona in the next 12 and 24 months, according
to a quarterly survey by Prospera Research.
“There
will be a time to buy Ericsson in the future, but not just
yet,’’ said Stuart O’Gorman, who helps manage $1.5 billion
in technology stocks at Henderson Global Investors in
Edinburgh and doesn’t hold Ericsson shares. “It can’t get
much worse than where they are now.’’
Sony
Ericsson’s portfolio of handsets suggests the joint
venture is positioned to gain market share in the first
quarter, Cowen & Co.’s Matthew Hoffman said in a December
4 report. The venture “might pressure Motorola’’ and turn
it into the world’s third-largest handset maker by the end
of the year.
Nokia is
the world’s biggest handset-maker, trailed by Samsung
Electronics Co. and Motorola. Sony Ericsson, a 50-50
venture between Ericsson and Tokyo-based Sony Corp., ranks
fourth.
“I don’t
see the underlying growth coming to a halt,’’ said Jacob
Pedersen, an analyst at Sydbank in
Aabenraa, Denmark, with a “neutral’’ rating. To regain confidence is
always a question of time. The share is the bad boy in the
class.’’ (With reporting by Ville Heiskanen in
New York,
Juho Erkheikki in Helsinki and Jennifer Joan Lee in
London.) | 
