Ericsson share dip after management set modest targets

Stock Market Predictions

STOCKHOLM (Global Markets) - Telecoms equipment supplier Ericsson (ERICb.ST) set targets on Friday for its executive bonus plan that implied modest, not spectacular, growth, sending its shares lower.

The targets, related to the executive bonus plan, are for compound annual growth in revenue of between 2 and 8 percent in 2011 through 2014, down from growth of 4 to 10 percent in the 2010 to 2013 period, set for management last year.

"Essentially it doesn't look very challenging," said Alexander Peterc, analyst at Exane BNP Paribas.

"People generally expect ambitious targets from managers, perhaps above market expectations, and that is not the case here, so the stock market's take on it might have a negative slant."

Shares in the company, which had risen to a two-month high last week, were down 2.1 percent at 1132 GMT, underperforming a 0.7 percent fall in European technology stocks .SX8P.

Ericsson does not publish market forecasts, so analysts and investors see the bonus targets as a guide to the company's views about the coming three years.

Some analysts said the change in targets reflected a strong performance in 2011 when the company gained market share and saw net sales growth of 12 percent.

"I wouldn't consider it (the new target) as a change (from last year)," said Hakan Wranne, analyst at Swedbank.

Ericsson kept its target for compound annual growth in operating income unchanged at 5 to 15 percent.

Peterc said Ericsson could reach this target just by turning around or dumping loss-making chip-making joint venture ST-Ericsson (STM.PA).

"Assuming that will be resolved by 2014 ... they will hit the target of their CAGR requirement, just by eliminating ST losses," he said.

ST-Ericsson made an operating loss of $867 million in 2011.

The group cash conversion target remains at 70 percent or above annually.

Ericsson showed strong growth last year as telecom operators spent heavily to improve networks to cope with the boom in data traffic from smartphones and tablets.

However, a shift to lower-margin business and growing caution among operators about the economy led to profit halving in the fourth quarter, souring investor views on the stock.

This year is also likely to be tough as the effects persist of Europe's debt crisis and a margin squeeze from a business mix heavy in low-margin hardware.

Ericsson shares are down around 5.5 percent year-to-date, underperforming a 14.5 percent rise European tech stocks as a whole.

(Reporting by Simon Johnson)