Eircom shares improved one cent to close at €2.73 in Dublin after the company confirmed that Swedish shareholder Telia has agreed not to sell its 14 per cent stake before January 2001. Volumes traded were small but prices were volatile with the shares hitting a high of €2.80 and a low of €2.70 on the day. Only about 1.5 million shares traded in Dublin and London, a tiny proportion of the 2.2 billion Eircom shares in issue.
The Telia agreement clears the way for 21 per cent shareholder KPN to sell its Eircom stake and removes some of the uncertainty hanging over the shares. KPN said yesterday that it intended to sell as soon as possible. But it said it had not yet fixed a date for the sale. KPN is expected to sell its stake in September through a secondary offering to both institutional and retail investors. But market analysts are convinced that there will be no significant improvement in the Eircom share price in advance of the removal of all the technical overhang of shares which would require the sale of both the KPN and Telia stakes. At €2.73 the shares are now €1.17 below their flotation price of €3.90 and well off their post-flotation high of €5.
Nervousness on international stock markets about telecoms shares and increasing competition in its own domestic market as well as the technical overhang have depressed Eircom shares. Deutsche Telekom shares were down 3.5 per cent to €55.15 million on concern that the company was prepared to pay a reported $53 billion for the US wireless group VoiceStream. And increasing pressures in mobile phone markets was evidenced yesterday in results from Sweden's Ericsson which were below expectations. Reporting quadrupled first half pre-tax profit to 18.6 billion Swedish crowns ($2.07 billion), the world's biggest supplier of mobile networks and third biggest mobile phone producer said it planned to sharpen its focus on the bottom end of the mobile phone market.
Its consumer products division, which constitutes 20 per cent of Ericsson's business, reported an operating loss of 1.8 billion crowns on sales which were 40 per cent up on the same period of last year. In the second quarter of the year Ericsson lost 1 per cent of market share in mobile phones to stand at 11 percent. The group would not seek to increase that share but will focus only on restoring profitability, according to the head of its consumer products division, Mr Jan Wareby.
"The overall market has shifted drastically to the lower end and our portfolio has not been adapted to that," he said. Ericsson president Kurt Hellstrom said the firm had set up a special unit to help develop cheaper mobile phones.
The company was also accused yesterday of withholding crucial information about a blaze at a sole supplier's factory in New Mexico which triggered an exceptional $256 million pre-tax loss at its handset unit.
The fire occurred four months ago at a factory owned by Philips Semiconductors, Ericsson's sole supplier of radio frequency tuners (rf-tuners) which connect handsets to base station-antennas. It severely slowed down Ericsson's mobile phone production.
