Swedish telecom gear maker Ericsson posted weaker-than-expected underlying earnings, hit by a slumping global mobile phone market and cutbacks in investments by operators.

The world's top mobile equipment maker, however, took a more optimistic view than rivals of a market threatened by global recession.

Ericsson said the global downturn had not hit the mobile network market that much yet, though it was hard to predict how operators would react to the worst recession in decades.

So far the effects are limited, but we see some, chief executive Carl-Henric Svanberg told reporters on Thursday.

We see some operators are delaying longer-term investment in fixed, and the fixed operators are affected on revenues.

Ericsson reported weaker-than-expected sales for the quarter and handset maker joint-venture Sony Ericsson -- hit by a slumping global mobile phone market -- also weighed heavily on the results.

Its shares, among the top blue-chip performers in Europe since autumn last year, were down 7.6 percent at 1038 GMT.

But Svanberg was more upbeat than many in the industry.

Number two mobile network firm Nokia Siemens Networks fell to its first ever quarterly loss in the January-March period and warned the market would shrink 10 percent this year in euro terms.

I think, at least for us, it seemed a little overly negative, their view, Svanberg said.

CORE EARNINGS LAG

Ericsson, the world's top mobile equipment maker reported quarterly net earnings above forecasts, due to financial gains, but core operating profit lagged at 1.8 billion Swedish crowns ($222.8 million) versus 2.0 billion seen by analysts in a Reuters poll.

Sales were 49.6 billion crowns against an expected 50.2 billion. The key network division had sales of 33.5 billion crowns against an expected 34.3 billion. Managed services, however, came in above expectations at 12.8 billion against a forecast 12.4 billion.

Their joint ventures aren't going particularly well, said Helena Nordman-Knutson, analyst at Ohman. The underlying margin in networks is weaker than expected, and cash flow is very weak. These are very mixed results.

The global recession has slammed most industries. Although the telecoms industry has been less affected, operators are downgrading their outlooks and cutting capital expenditure.

I am struggling to see what the positives are in this report on expectations that were extremely high, said Patrick Standaert, analyst at Morgan Stanley.

And things are probably getting worse going forward when you see that the operators are actually starting to cut capex a bit more aggressively.

Last week, Deutsche Telekom slashed its outlook for 2009, mainly due to tough market conditions in the United States and Britain..

Handset makers, like Sony Ericsson, have already been badly hit. The joint venture with Sony Corp posted a 370 million euro pretax loss in the first quarter and said the mobile phone market would shrink more than 10 percent this year.

($1=8.078 Swedish Crown)

(Editing by Jon Loades-Carter and Mike Nesbit)

(Additional reporting by Niklas Pollard, Johannes Hellstrom, Sven Nordenstam, Veronika Ek)

Electronics Sony