As expected, this past quarter was very challenging

Kurt Hellstrom, chief executive

Gloom over Ericsson's prospects sent shares in the firm tumbling 24% to a five-year low.

Investor hopes are now pinned on the firm's drastic cost-cutting programme, under which 22,000 jobs - a fifth of the workforce - went last year.

Now, 10,000 staff will lose their jobs in 2002, and the same number again next year, as the Swedish telecoms giant plans to achieve total cost savings of 40bn kronor by 2004.

"Everyone knew it was going to be pretty awful, but the scale of it and the steps they are taking is slightly more than the market was looking for," said Alex Scott, analyst at Seven Investment Management.

Handset hopes

Ericsson was cheered by the news that its mobile handsets division - operated in tandem with Japan's Sony - had broken even during the quarter, compared with a 5.5bn kronor loss a year earlier.

But heavy losses at Ericsson's vital systems division, which builds mobile networks for telecoms operators, more than cancelled out its handset performance.

"As expected, this past quarter was very challenging," said Kurt Hellstrom, president and chief executive.

"As sales will be lower than anticipated, with ongoing aggressive cost cutting we plan to return to profit at some point in 2003."

Ericsson is already one of the most aggressive cost-cutters in the business, having reduced its cost base by 20bn kronor at the end of 2001.

Cash call

The company now plans to ask shareholders for 30bn kronor more through a rights issue.

It said its two largest shareholders, Investor and Industrivarden, which together control the company, supported the new share issue.

But other shareholders were not so keen.

Sales of the T68 phone with colour screen were much better than expected

"I don't know if the market will focus more on the cost-cutting measures, or if they will start to think about writing off the industry for a while," said Susan Anthony, analyst at Credit Lyonnais.

Ericsson has lost a huge chunk of market share in mobile handsets, dropping from global number-two provider to number four in the past couple of years.

The firm claims to have steadied its mobile handset business, and has launched a raft of new products this year.

Spokesman Mads Madsen told the BBC's World Business Report that the company had continued to expand its market position in its core business - which was mobile systems.

But its systems division has been hit hard by frozen and slashed investment budgets among telecoms operators all over the world.

On the Stockholm Stock Exchange, Ericsson shares closed at 27.3 kronor, the lowest level since January 1997.