Despites Sales Growth, Ericsson Profit Plunges

But shares in Ericsson, based in Stockholm, rose by 0.3 percent through early afternoon trading, to 74.25 krona, as investors focused on underlying operating profits and comments by the chief executive, Hans Vestberg, who said he saw demand for new networks, its most lucrative business, accelerating this year.

In the first three months of the year, 30 percent of Ericsson’s network equipment sales were made to the four big American network operators — Verizon Wireless, ATT Mobility, Sprint and T-Mobile U.S.A. — a record for the Swedish company. Those companies are Verizon Wireless, ATT Mobility, Sprint and T-Mobile U.S.A., which are expanding or planning to expand their mobile broadband networks.

“The networks division is going in the right direction,” said Hakan Wranne, an analyst with Swedbank in Stockholm. “This is being driven of course very much by the U.S market, which is basically the four big customers. That is also a risk.”

Net profit at Ericsson fell to 1.2 billion krona, or $180.7 million, in the three months through March from 8.8 billion krona a year earlier, when profit was inflated by a one-time gain of 7.7 billion krona from the sale of a 50 percent stake in SonyEricsson to Sony.

Sales in the first quarter rose 2 percent, to 52 billion krona, led by a demand in North America and Southeast Asia, where sales rose by 23 percent and 22 percent, respectively. That offset a 34 percent sales decline in China, Japan and South Korea, where the weakening Swedish currency and slowing network investments weighed on results.

Excluding these and other one-time effects, Ericsson’s operating income rose 50 percent in the period to 2.1 billion krona from 1.4 billion krona a year earlier.

Ericsson’s biggest rival, Huawei of China, has been effectively barred from selling equipment to U.S. operators because of national security concerns by American lawmakers — fears the Chinese company says are unfounded. The intense competition between Huawei and Ericsson has turned to Europe, forcing equipment prices and profits lower for both companies.

In the European market, which Ericsson defines to include Russia and some of the former Soviet republics, quarterly sales rose 6.3 percent to 11.9 billion krona.

“What we have been seeing for several years now, particularly in Europe with the modernization and huge swap-outs of networks, is that those contracts have been taken by Ericsson and Huawei at very low margins,” said Mr. Wranne, the analyst.

Mr. Vestberg, the Ericsson chief executive, said in an interview that he expected operators in Europe, North America and parts of Asia, to accelerate their equipment purchases in the second half of this year, as carriers upgrade networks to accommodate the demands of their new Long Term Evolution technology, which delivers the fastest mobile broadband speeds on the market.

Equipment purchases intended to raise the capacity of networks, like replacing routers and updating network software to improve the efficiency of networks, are typically among the most lucrative types of sales for Ericsson.

“You have a new technology push, a roll-out of a lot of coverage, you start upgrading and then you begin putting capacity in the networks,” Mr. Vestberg said. “In the way we are approaching this mobile broadband technology right now, it will have a major impact on our society. And it is definitely being driven by data and networks.”

Weighing on Ericsson’s results was a one-time charge in the quarter of 1.4 billion krona to eliminate jobs for 919 employees in Sweden, or about 5 percent of its domestic work force of roughly 17,200, and the costs of reducing staffing at its global network management business. Its global work force was about 110,000 at the end of last year.

In Latin America, Ericsson’s sales fell 9 percent to 4.4 billion krona in the quarter as operators postponed building new networks amid delays in auctions of radio-frequency spectrum.

Article source: http://www.nytimes.com/2013/04/25/technology/despites-sales-growth-ericsson-profit-plunges.html?partner=rss&emc=rss