The global downturn finally caught up with telecom gear maker Ericsson on Thursday as it posted falling sales and lower-than-expected quarterly core earnings.

Analysts predicted the group's shares, which have risen 8 percent since early October, would take a knock.

The equipment market has previously been resilient during the global financial crisis, with Ericsson being one of few top-flight companies managing to maintain profits and sales.

But the third-quarter figures showed there has been a sting in the tail from the worst economic crisis in decades as capital spending cuts by operators have now trickled through to suppliers.

This wasn't exactly a hit. It is first and foremost systems sales and professional services that are clearly worse than expected, said Greger Johansson, analyst at Redeye.

The share will trade down heavily on this.

Nokia Oyj was forced last week to take a 908 million euros ($1.4 billion) writedown at its Nokia Siemens Networks [NSN.UL] joint venture, which competes directly with Ericsson. [ID:nLF596616]

The world's top mobile equipment maker reported operating earnings of 5.5 billion Swedish crowns ($795 million), excluding restructuring charges and its loss-making joint ventures.

That compared with a mean forecast of 5.8 billion in a Reuters poll and 5.6 billion in the year-ago quarter.

TOUGHER CLIMATE

Sales at Ericsson's key network equipment unit skidded 8 percent year-on-year.

Sales of network equipment declined due to lower demand in the current tougher market environment, Chief Executive Carl-Henric Svanberg said in a statement.

Sales at Ericsson's Professional Services unit and Multimedia units also lagged analysts' mean forecast.

Sales for Ericsson in the third quarter at 46.4 billion, were well below an expected 51.1 billion, with the company's biggest unit, networks, accounting for most of the shortfall.

Svanberg, who leaves the firm at the end of the year, said the economic climate was affecting the global mobile infrastructure market and the credit environment is still tight in several emerging markets.

However, other markets, including the world's leading economies such as China, India, U.S. and Japan show good development, he said.

Ericsson has consistently declined to give a market outlook.

In its third-quarter report, Nokia Siemens Networks was less gloomy than it had previously been. It now sees a decline in the equipment market of around 5 percent in euro terms in 2009 versus its earlier prediction of a 10 percent decline.

($1=6.921 Swedish crowns)

(Additional reporting by Niklas Pollard, Adam Cox, Anna Ringstrom, Eva Odefalk, Sven Nordenstam, Katerina Gustafsson; Editing by David Holmes and Mike Nesbit)

Electronics