Ericsson sparks fear of telecom meltdown with warning of lower mobile phone sales

Ericsson, the Swedish telecoms equipment supplier, yesterday stunned stock markets by forecasting that its mobile phone sales for the first quarter would be "considerably lower" than the same period last year. Fears that mobile phone growth is grinding to a halt helped push Nasdaq below 2,000 points for the first time since December 1998.

Ericsson, the Swedish telecoms equipment supplier, yesterday stunned stock markets by forecasting that its mobile phone sales for the first quarter would be "considerably lower" than the same period last year. Fears that mobile phone growth is grinding to a halt helped push Nasdaq below 2,000 points for the first time since December 1998.

Ericsson, the world's third- largest mobile phone manufacturer, cited low replacement demand for mobile phones, reduced operator subsidies for customers and high inventory levels in the distribution chain. Ericsson said its overall sales across all products had been hit by the current economic slowdown, particularly in the US, which has reduced investment in information technology.

The company now expects overall sales for the first quarter to be "flat or somewhat lower" compared to the first quarter of last year, and pre-tax losses for the same period to be as high as £347m, compared with earlier expectations of breakeven. Ericsson's shares plunged 20 per cent to 65.5 Swedish kronor.

The technology-rich Nasdaq index, which set a record high of 5,048.62 a year ago on 10 March, fell 75.64 points, or 3.68 per cent, to 1,977.14 in early afternoon trading; more than four stocks fell for each gainer.

In London, the FTSE 100 index closed at a new two-year low, ending down 90.8 points at 5826.5. Several leading telecoms and technology stocks came under pressure, with ARM Holdings, which designs chips for mobile phones, losing 9 per cent to 302p. Marconi, Bookham and BATM, which make optical components and switches for telecoms networks, fell 7 per cent, 18.7 per cent and 8 per cent respectively.

BT was another loser, on City fears that the carrier was planning a rights issue to cut debt; its shares lost 4 per cent. COLT Telecom fell 7 per cent.

In Stockholm, Ericsson said it expected losses before tax "to be in the range" of 4bn to 5bn Swedish kronor (£278m to £347m). Lower sales, continued investment in R&D, price pressure on mobile phones and implementation costs for 3G mobile services were blamed.

"The current economic slowdown, in particular in the US, has increased the uncertainty about the growth rate in the entire information technology sector," it said.

"As now announced by a great number of important industry players, this uncertainty has had a great impact on current investment levels in the whole industry, also in some markets outside the US. This has also affected Ericsson."

In Ericsson's fourth-quarter statement, the company had said it expected total first quarter sales to increase by around 15 per cent over the previous year, "with continued strong growth for systems but lower sales for phones".

However, yesterday it said the slower growth was affecting all of its operations. "Customers in the US in particular are postponing their capital expenditures. Also in Western Europe, in markets with already-high penetration, operators are delaying investments," Ericsson said.

Nortel Networks has told employees surviving its job cuts to forego magazine subscriptions, first-class travel and mobile phones.