Ericsson's sales grew by 24 percent to 39.20 billion kronor ($5.21 billion), from 31.50 billion kronor in the first quarter of 2005. Its net profit in the January-March period was 4.61 billion kronor (US$613 million), marginally down from 4.64 billion kronor in 2005. The market was expecting 5.30 billion kronor ($700 million) profit.

Ericsson's gross margin in Q1 fell from 48.50 percent to 43.30 percent due to its $2.10 billion acquisition of Marconi in January to revamp the fixed-line network business.

Ericsson's CEO Carl-Henric Svanberg said the company needed more time to improve the Marconi assets' profitability, which generated an operating loss of 600 million kronor ($80 million), two-thirds of it in restructuring costs.

"We are laying off some 1,500 to 1,800 staff during the second half of the year," Carl-Henric said. "This will generate savings of two billion kronor ($265 million) that will be there in run-rate at the end of the year."

Acquiring Marconi resulted Ericsson's 174 percent year-on-year and 126 percent sequential growth in the fixed network business. That has, however, failed to stop the 7.30 percent fall of Ericsson's share price on Friday.

Copenhagen-based telecoms analyst John Strand thinks the capital market has overreacted. "I wouldn't look at it so negatively as the stock market is in the short term," he told Associated Press. "I have no doubt that Ericsson will integrate Marconi fast, and with success."

Ericsson's CEO said increased competition and low-yield managed services contracts affected his company's profit. Ericsson runs mobile phone networks under such deals, where it is usually a supplier too.

In December, Ericsson sealed a 15 billion kronor ($1.87 billion) managed-services deal with British operator 3, which happens to be the largest such transaction it has ever inked. Ericsson manages 30 mobile networks serving 60 million subscribers.

Ericsson has posted 60 percent growth in this segment during Q1. It believes the managed services market would show "good growth" in 2006 as the mobile operators are keen to shed operating expense.

Its Asia Pacific sales grew by 44 percent compared to the same quarter last year, primarily due to strong growth in Australia, India, Indonesia and Japan. Central and Eastern Europe, Middle East and Africa sales also grew by 21 percent. Egypt, Pakistan, Saudi Arabia and South Africa were quite vibrant with new and expansion deals for GSM and third generation (3G) mobile.

In the emerging markets, the anticipated subscriber increase puts focus on cost efficient infrastructure, handsets and local operations. "The mobile phone is often the only means to communicate in emerging markets, and demand is therefore high also for advanced data services," the company says.

The number of 3G subscriptions exploded from eight million to 55 million during first quarter. During this time two more 3G networks were commercially launched, totalling 93. Ericsson has supplied 50 such networks.

Almost 100 million new mobile subscribers were added worldwide during Q1 and mobile penetration reached 36 percent with nearly 2.30 billion customers in total, of which more than 1.80 billion use GSM. Ericsson believes the global numbers of cellular mobile subscribers will exceed the three billion mark during 2007.