LONDON — Ericsson's profits warning was another nasty surprise from an equipment manufacturer targeting wireless infrastructure. But as well as raising question marks about the fundamentals of the mobile sector -- and specifically the prospects for upgrades to wireless broadband -- it raises serious concerns about the reporting structure at the Swedish equipment maker, which has a 40 percent stake in the mobile infrastructure market.

The surprise was that only five weeks ago, Ericsson indicated to investors that business was doing fine and that it was taking market share from its main competitors, Alcatel-Lucent and Nokia Siemens Networks. Both these now joint ventures also downgraded forecasts over the past few months.

And Ericsson's was no small warning. It said operating profit for the third quarter of 2007 was expected to be $865 million, down 36 per cent compared with the same period last year.

The fourth quarter would also show declining operating margins year-on-year, the company warned. No wonder the shares plunged nearly 30 percent following the warning, costing Ericsson its long held rank as Sweden's largest publicly traded company.

The warning came despite the fact that the company has been winning large, headline-grabbing orders from the likes of China Mobile, the world's largest mobile network operator, and India's Bharti Airtel, that country's fastest growing operator. The problem is that contracts for new mobile infrastructure in emerging markets generate lower margins compared with expansions or upgrades to existing wireless networks.

That and the fact that the Swedish group, and its traditional rivals, are also chasing these orders in the face of increasing, and increasingly aggressive competition from relatively new kids on the block from China, mainly ZTE and Huawei.

Carl-Henric Svanberg, Ericsson's embattled CEO, admitted as much, suggesting prices were falling by about 10 to 15 percent each year.

And in Europe, there is the isssue of increasing network sharing among operators to be taken into account. For instance, in the U.K., the four main operators, Vodafone, 02, T-Mobile and Orange are all considering this or are at the early stages of implementation, following changes in the regulatory environment.

For all that, most analysts are suggesting the revenues and profit shortfall indicated by Ericsson is due to delays by major operators across the U.S, Europe and Asia, rather than cancellations. They figure if the increasing traffic is there, both in emerging countries for voice and SMS and wireless broadband in mature markets, operators will eventually buy infrastructure gear.

For now, though, there seems to be a waiting game among the major network operators, notably in the U.S. about who will jump first with major upgrades to wireless broadband.

Ericsson is actually in a better position to grab these orders if they come sooner rather than later, at least from traditional competitors, since it is not distracted by the always difficult restructuring that inevitable follows deals such as those that created Alcatel-Lucent and Nokia Siemens Networks.

None of that will be any comfort right now to Svanberg, who spent the last fouur years winning industry and investor confidence in the Swedish group after a difficult time five years ago in the midst of the huge downturn in infrastructure orders.