Ericsson Offers

Hot on the tails of yesterday’s story about how Ericsson had scored a major contract with T-Mobile USA, Carl-Henric Svanberg, CEO or Ericsson, announced positive cash flow at Ericsson for the third quarter, and a stronger financial position. This news was taken as a positive surprise by analysts and the investment community, who rallied around the stock, shooting it up as much as 23% (to 10.80 crowns) in mid-day trading. While Ericsson has done a good job of putting its finances in order, it’s incorrect to take this as a sign of an improving market for their products. The reason Ericsson is one quarter away from being in the black after 11 quarters in the red is that it has reduced the workforce to less than half, and sold off non-core divisions. Financial analysts should be more sanguine about the report: management cutting divisions to save costs is the easy thing, but the tricky thing is to keep those parts of the company that will contribute the most to future revenue streams. We have yet to see if Ericsson has succeeded at that.

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