Ericsson CEO Sees 2Q Softer Margins,Improved 2nd Half"

NEW YORK -(Dow Jones)- Ericsson expects softer margins to continue in the second quarter, with margins improving in the second half of the year, President and Chief Executive Carl-Henric Svanberg said Wednesday.

The second half will see a better mix with more software than hardware, Svanberg said during the company's Capital Markets Day Wednesday.

"When comparing this year with last year, it's clear you don't get much growth," he said.

In the first quarter, gross margins fell to 43.3% from 48.5% a year earlier. The year-earlier results were boosted by higher software sales.

While margin pressure from the January acquisition of Marconi will occur, his current expectations don't include the integration costs. Restructuring charges from Marconi will be taken as they occur, he added.

Svanberg said the acquisition of Marconi has been well received by customers.

"The business flow is stronger than expected," he said, adding that Ericsson has signed contracts with Vodafone Group and Telefonica using Marconi products.

The restructuring of Marconi is "running at full speed," Svanberg said. The company plans to cut its work force by 1,600 people. It also expects full savings from the streamlining of its supply chain by the end of 2007.

Marconi adds products that deal with transmission of broadband traffic, as Ericsson focuses more on broadband access. Svanberg said the broadband business provides "hefty growth."

During the next five years, 85% of the growth in mobile subscribers will come from the emerging markets, Svanberg said.

Ericsson, Stockholm, projects a global market of three billion mobile subscribers by 2007, as growth continues to exceed expectations, Svanberg said. As a result, voice revenue should continue to grow through higher usage.

Ericsson expects the global mobile systems to show moderate growth, while the addressable market for professional services should show good growth, Svanberg said. He added that it will take a while for sales related to third-generation, or 3G, networks to exceed 2G infrastructure, but he expects the emerging markets to make investments in 3G.

In recent trading, Ericsson shares were down $1.68, or 4.7%, at $34.01, on volume of 1.7 million shares. Average daily volume is 2.2 million.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 10th May 2006