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Electronics Production | July 23, 2008

Elcoteq reports brighter second quarter,<br>Nokia no longer top customer

Finland basd EMS provider Elcoteq's second quarter net sales totaled 904.8 million euros (968.3 million euros in April-June 2007). Income before taxes was -5.5 million euros (-25.1).
The second quarter operating income turned positive as expected, and totaled 0.6 million euros (-19.0). In spite of the net sales being lower than in the first quarter of 2008, the operating income clearly improved (-9.5 million euros in January-March 2008). Cash flow after investing activities in the second quarter was -78.5 million euros (-21.0). It was affected by the temporarily high finished goods and component inventory levels caused especially by a Personal Communications customer's overly optimistic forecast for the second quarter.

In the second quarter of 2008, Personal Communications contributed 70% (65%), Home Communications 10% (13%) and Communications Networks 20% (22%) of the Group's net sales. Elcoteq's largest customers (in alphabetical order) were Ericsson, Nokia Devices, Nokia Siemens Networks, Philips, Research in Motion (RIM), Sony Ericsson and Thomson. Over the past year and a half the company has significantly grown with several of its other major customers whereas the share of Nokia has declined and Nokia is not the biggest customer anymore.

Expanding the service offering to an Integrated EMS (IEMS) company is proceeding and expected to be implemented by the end of 2008 as earlier announced. Through its IEMS strategy, Elcoteq is placing special emphasis on the broadening of its service offering to increasing its mechanics expertise and services, and to the strengthening of product development services that combine both electronics and mechanics. Elcoteq has previously announced that, in addition to developing its own operations, this strategy could call for specific M&A arrangements or various forms of collaboration with other companies in the same sector.

The most important short-term challenges with respect to Elcoteq's business operations concern the company's ability to improve its cost structure - and thus its profitability - at a rate quick enough to cope with market conditions that are becoming increasingly tight, coupled with its ability to offer service packages that correspond to customer demands and needs. The ability to react rapidly to changing market situation is especially important in times of increased economic uncertainty.

Elcoteq's key priorities during 2008 are to significantly improve the company's profitability and to prepare the ground for future growth by expanding the service offering in accordance with customers' needs. The company has gone through several changes in the past year. The growth with major customers, accomplished cost savings and closures or divestments of three factories are proving to be effective as the second quarter results show.

Elcoteq's current forecast is that the operating income will improve substantially in 2008 compared to 2007. The company's full-year net sales are expected to be at lower level than in 2007, based on the weaker than expected development in the Personal Communications Business Area and a temporary decrease in the sales during the third quarter. Irrespective of the continuing forecasted change in the customer structure the Group's operating income is expected to be at the level of 1% towards the end of the year.

The third quarter net sales are expected to be lower than in the second quarter of 2008 while operating income is expected to be at about the same level.

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