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Ericsson Sees Lower Profits

Ericsson stock drew the ire of investors Wednesday as analysts cut or held their forecasts on the company after it said it expects a tough first quarter and will trim 11 percent of its staff.

Morgan Stanley lowered its outlook on the communications equipment manufacturer from a "neutral" to "underperform," after Ericsson (ERICY) said it expects to post lower profits in the first half of 1999. Morgan Stanley also lowered its outlook on first quarter sales growth from 6 percent to 2.1 percent and said its "underwhelmed" by Ericsson's new products for 1999, citing tough competition.

In a conference call Tuesday, Ericsson said it plans to cut staff by 11,600, about 11 percent of its worldwide work force, over the next two years.

Ericsson's U.S.-listed shares slipped 2, or 9 percent, to 20 9/16. Ericsson makes products for wired and mobile communications.

CIBC Oppenheimer said in a research note that its rating on the Stockholm-based company remains a "hold." CIBC cited Ericsson's "introduction of uninspiring new phones" may be cause for investors to re-evaluate the company.

Analysts at CIBC said it cut its first-quarter estimate from 11 cents to 7 cents a share, three cents lower than the First Call consensus. The 1999 estimate on Ericsson has also decreased from 86 cents to 75 cents a share. The First Call prediction for 1999 is 89 cents a share. CIBC said Ericsson blames its revised first-quarter views on pricing pressure in the handset market, as well as restructuring costs.

In addition, Donaldson, Lufkin & Jenrette's maintained its "market perform" rating and said its 12-month target for Ericsson is $25. Its first quarter calculation is 9 cents a share. Yet, analysts from PaineWebber said it's all "much ado about nothing" and kept its "attractive" rating on the company.

Written By Janet Haney, CBS MarketWatch