Ericsson Q1 operational results down on handsets, reduced margins in systems

STOCKHOLM (AFX) - LM Ericsson AB said its first quarter operational results were down on "further weakening" in its handsets division and a reduced operating margin in for systems.	    Ericsson's adjusted operating margin was minus 8 pct compared with 11 pct a year earlier.	    Ericsson said its negative cash flow in the first quarter, minus 17.7 bln skr compared with 6.2 bln skr a year earlier, was primarily attributable to operating losses in mobile phones and slower customer payments.	    Kurt Hellstroem, president and chief executive officer, said: "A general economic downturn and an abruptly slower telecom sector are affecting our customers as well as us. Many operators are postponing their investments, which has resulted in an overall reduction of sales.	    Hellstroem said improving cash flow will be given the "highest priority".	    "We are strengthening the core systems business, delivering on commitments to customers and ensuring that we remain in the pole position when the market st arts growing again," he said.	    Sales in mobile systems were up 9 pct in the first quarter.	    The company said this was in spite of delayed investments for capacity build out and that in America the transition from TDMA to GSM has brought TDMA investments to a halt while GSM build-out has not yet started.	    The company said it sees China becoming its largest market again after "particularly strong" growth in systems sales, while Western European and Japanese operators are conserving 2G investments for 3G build-out.	    The 5 pct decrease in group orders was primarily due to a 51 pct drop in mobile phones, offset somewhat by the increase in systems orders, it said.	    In Western Europe, the order increase was mainly driven by 3G, while orders in Latin America increased as a result of higher demand for Multi-Service Networks.	    However a sharp decline in Japanese and U.S demand -- PDC and TDMA -- contributed to the lower order development this year, Ericsson said.	    On the handsets side, Hellstroem said a weaker market has contributed to further deterioration. 	    The company said overstocked distribution channels and lower subsidies from operators caused slower growth in the mobile phone industry in the first quarter.	    It said the continued oversupply situation has led to "significantly lower" average sales prices, lower unit volumes, and higher-than-expected losses.	    "As a result, we are limiting the scope of our phone operations to the essential parts that also support our systems business. This will give us a business that is smaller, more manageable, and has lower risk."

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