Ericsson, the world's biggest supplier of cellphone network equipment, said the economic downturn was now taking a bigger toll on its market, a shift that took the gloss off a sharp rise in its headline second-quarter profit.

The company had been largely unscathed by the economic woes, sheltered by robust sales in China and strength in its services business, while growing its share of a shrinking market for mobile network gear.

But chief executive Carl-Henric Svanberg said the effects of the financial crisis were now being seen, especially in emerging markets where currency wobbles were adding to economic woes.

"The weak economy that we have now will not go away for the next several quarters anyway, so we are living in a tougher environment," Svanberg was quoted as saying in our sister publication, the Gulf Daily News.

"I don't think we can give any better indications of whether it's going to be a little bit better or a little bit worse. It is an uncertain environment," he added.

Chief financial officer Hans Vestberg, who will take the helm after Svanberg moves to BP, also told analysts that operators were optimising cashflows, making it tough to collect.

Ericsson's second-quarter operating earnings rose 47 per cent to 6.9 billion Swedish crowns ($914 million), excluding restructuring charges and its loss-making joint ventures, while sales were up 7.4 per cent at 52.1 billion crowns.

Analysts had on average forecast a profit of 6 billion crowns and sales of 52.9 billion, according to a Reuters poll.

"It's a bit of a mix. On the negative side we have the cautious comments on the macro environment - this will get noticed and should be seen as a warning sign for the later part of the year," West LB analyst Thomas Langer said.

Many analysts expect worse to come as operators slash capital expenditure to weather deep recessions on both sides of the Atlantic, weighing on equipment sales for manufacturers such as Ericsson and Nokia Siemens Networks. – TradeArabia News Service