December 11, 2007 / 7:14 AM / 12 years ago

Ericsson turns down extra business from India

(Repeats story issued late on Monday)

(Updates with analyst comment, shares, background)

By Adam Cox

STOCKHOLM, Dec 10 (Reuters) - Ericsson (ERICb.ST) said on Monday said it was turning down extra business from Bharat Sanchar Nigam Ltd (BSNL) that is estimated at nearly $1 billion, the second major supplier to spurn the Indian state-run firm.

Ericsson’s decision comes as it is trying to rebuild both margins and investor confidence. It shocked the market with a profit warning in October, quickly followed by a downbeat presentation in November, the two events combining to nearly halve the share price.

Ericsson will still handle 60 percent of BSNL’s order for about 23 million lines, supplying 13.12 million lines for nearly $91 per line in a deal worth $1.3 billion.

The remaining 40 percent was awarded to the second-lowest bidder, Nokia Siemens Networks [NSN.UL], but it decided against the deal. “We were offered and we said no,” said Ericsson spokeswoman Jana Mancova, confirming a report on the Web site for Swedish daily Dagens Industri.

The newspaper had quoted an Ericsson manager in India. Mancova said the company wanted to focus on ensuring high quality for its Indian customers and said the decision was not related to the terms on offer.

Mats Nystrom, analyst at SEB Enskilda, said a combination of factors may have been involved. “One reason may be, they said: Okay, we cannot supply more volume at this low price.”

Another reason could be that Ericsson did not want to jeopardise its ability to supply other Indian customers, as it has taken on a huge amount of Indian business lately.

Greger Johansson, analyst at Redeye, also said the terms did not look good enough for Ericsson to take it on. “The business case for Ericsson is not very good,” he said.

MARGIN MALAISE

At the root of Ericsson’s troubles has been an erosion in margins as the company has been gaining a greater share of its business from new networks, which are less lucrative, and fewer than expected orders for high-margin upgrades and expansions.

The BSNL order, a protracted affair that resulted in a lower-than-anticipated price, had been a prime example of the kind of business that was putting pressure on margins.

As far as investor sentiment was concerned, Nystrom said, it was probably good that Ericsson was not going for the new business.

Nokia Siemens Chief Executive Simon Beresford-Wylie said last week at an investor presentation in Amsterdam that his firm was not interested in the terms on offer.

BSNL said in November that Nokia Siemens had bid $171 a line and under its rules it could offer the remaining 40 percent to the second-lowest bidder if it was willing to match the lowest bidder’s price.

“We have been in discussions with BSNL, and based on the terms and conditions that were there, we’re not interested,” Beresford-Wylie said at last week’s event.

Nystrom said it would be interesting to see if BSNL now went to the third-lowest bidder, thought to be Nortel Networks Corp NT.TO, or whether it ultimately had to tender again at higher prices.

Separately, Ericsson said on Monday it had won a deal to build networks in seven Greek cities. The contract is for the supply and installation of fiber optic networks that will link hospitals, town halls, schools and other buildings. Terms were not disclosed.

Ericsson shares at 1450 GMT were at 16.14 crowns, up 1.1 percent. They have fallen from more than 26 crowns before a profit warning on Oct. 16.

(Editing by David Holmes and Erica Billingham)

((stockholm.newsroom@reuters.com; +46-8-700 1017)) Keywords: ERICSSON INDIA/

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