Telecom equipment maker Ericsson reported better-than-expected second-quarter earnings this morning but its shares fell as sector weakness and signs of sluggish profitability weighed on the market.
Ericsson shares fell 8.9 per cent to 68.40 crowns by 9.07am, after rising in the days leading up to the results. The DJ Stoxx European technology index fell 3 per cent.
Ericsson, the world's No. 1 mobile network maker, beat forecasts for the second consecutive quarter with earnings before interest and tax of 4.7 billion Swedish crowns ($789 million) excluding restructuring costs. Forecasts were for 4.3 billion.
But the firm, which earlier this year announced a plan to chop 4 billion crowns off annual costs, said restructuring costs in the second quarter came in at 1.8 billion crowns. That was nearly four times the expected amount of 502 million crowns.
Ericsson's key network business, the main source of its revenues, was still facing margin pressure as new rollouts made up a surprisingly large share of business in emerging markets, the firm said.
Network operating margins, at 10 per cent, were up slightly from 9 per cent in the first quarter but down from 19 per cent a year earlier.
A high share of new networks - as opposed to the more lucrative business of expanding or upgrading existing networks - was given as the main reason for a collapse in third-quarter earnings last year, which led to massive share price falls.
But several analysts said that on the whole the report was positive. Ericsson chief executive officer Carl-Henric Svanberg said business activity showed a "stable development" and he repeated the firm's 2008 outlook for a flat mobile infrastructure market.
Mr Svanberg said the decline of the dollar had hit sales growth and margins in the second quarter.
Sony Ericsson, the firm's joint venture with Sony Corp, last week posted a small operating loss in the second quarter and warned of a challenging market for at least the rest of the year.
It has issued profit warnings for two quarters in a row as consumers have scaled back purchases of expensive phones.