Ericsson seeks more cost cuts as global slowdown bites

 Telecoms equipment maker Ericsson reported a 42 percent drop in third-quarter core profit and promised more cost cuts to protect itself from the global slowdown.

Telecoms gear makers are under stress from tough competition and slower spending by the operators that are their clients.

Ericsson, the world number one mobile network equipment maker, has also seen margins shrink due to more low-margin contracts in Europe that have helped it gain market share but hurt profitability.

It said these factors would continue in the short term.

"Network sales continue to be very slow and ... continue to weigh on gross margin," said Pierre Ferragu, analyst at Sanford Bernstein. "To me it is just a question of waiting for a better economic environment."

Ericsson said sales in its key networks unit fell 17 percent year-on-year, reflecting lower sales in parts of Europe, a continued decline in older standard networks in the United States and China and lower 3G sales in Russia.

It said the slowdown and political unrest had led to more cautious operator spending and added that profitability was not satisfactory, despite cost reductions over the last year.

"We will continue to proactively identify and execute additional efficiency gains and cost reductions," CEO Hans Vestberg said in a statement. He gave no details.

Ericsson shares were down 4.5 percent at 57.80 crowns in early trade against a 1 percent decline in the STOXX Europe 600 Technology Index <.SX8P>, erasing the previous day's gains. The stock has plummeted since early 2011 and hit a 3-1/2 year low of 55.9 crowns in July.

SLOWDOWN

The global slowdown has put a dent in telecoms operators' spending plans in recent quarters.

This week Sprint Nextel Corp lowered its capital spending forecast for the full year, echoing measures by rivals Verizon and AT&T .

Equipment suppliers like Ericsson and rivals Nokia Siemens Networks and Alcatel-Lucent