March 28, 2024

Ericsson Posts Loss, but Sales Increase

BERLIN — Ericsson, the world’s biggest maker of mobile telephone network equipment, said Thursday that its sales and profit grew faster than expected in the fourth quarter as phone operators in the United States and Canada spent heavily to upgrade wireless networks.

The company booked a net loss during the quarter as it wrote down the value of ST-Ericsson, an unprofitable smartphone component venture with the French chip maker ST Microelectronics.

But investors apparently looked past that to focus on the underlying growth. Shares of Ericsson, based in Stockholm, rose almost 10 percent after the earnings report, which showed that demand from North America had helped lift Ericsson’s global sales of network equipment, the company’s main business, by 6 percent from a year earlier.

Ericsson’s sales of equipment, software and services in the three months through December rose 5 percent to 66.9 billion kronor, or $10.5 billion.

“This suggests the declining sales of network equipment we have seen for some time has finally begun to turn around,” said Hakan Wranne, an analyst at Swedbank in Stockholm.

In North America, Ericsson said sales of mobile broadband and other network gear to U.S. and Canadian operators surged 86 percent to 9.4 billion kronor in the quarter from a year earlier, without providing a comparative figure. Sales of equipment rose 10 percent in Western Europe and 38 percent in India.

The increase followed four quarters of declining global network sales.

“We continue to believe the long-term fundamentals of this industry are attractive,” said Hans Vestberg, the Ericsson chief executive. “I think it is clear that society will be using mobile broadband and the cloud much more than they are now.”

Ericsson said it took a charge of 8.6 billion kronor against earnings in the period for ST-Ericsson, which is based in Geneva and has generated about $2.8 billion in losses since February 2009. The charge caused Ericsson to report a loss of 6.3 billion kronor for the fourth quarter.

Ericsson had warned investors of the charge on Dec. 20.

ST-Ericsson employs 5,090 workers and makes processor modules and modems for some Samsung, Motorola and Sony smartphones.

Mr. Vestberg said he had no new information on the future of ST-Ericsson, which reported a $71 million loss in the quarter on unchanged sales of $358 million. Last month, STMicroelectronics announced plans to leave the venture, and Ericsson said it had no intention of buying its partner’s stake.

“We continue to believe that the modern technology in this venture is of strategic importance to the industry,” Mr. Vestberg said. “We are now in a discussion among the shareholders about our options going forward. We don’t exclude anything at this point.”

Mr. Wranne, the Swedbank analyst, said he thought it was possible that Ericsson might simply resort to shutting down the joint venture sometime this year.

“Both parents have essentially turned their back on the company, and what I think they have done is essentially killed it,” Mr. Wranne said. “At this point, it is not certain whether the venture will be operating six months from now.”

With the charge against earnings, Ericsson has written off the entire value of its investment in ST-Ericsson, said Jan Frykhammar, the Ericsson chief financial officer. The business began to deteriorate after Nokia, its biggest client, announced plans in 2011 to halt its Symbian smartphone line, which had used many ST-Ericsson components.

Ericsson’s main network equipment business, which made up 53 percent of its sales in the quarter, more than made up for the ST-Ericsson write-off. Sales of Ericsson’s equipment, software and services in North America rose 51 percent to 17 billion kronor.

Excluding the ST-Ericsson charges, Ericsson’s operating profit in the quarter rose by 17 percent to 4.8 billion kronor.

Sales in the quarter rose on an annual basis in all regions except Scandinavia, the Mediterranean region of southern Europe, China, the Middle East and Latin America.

The gains are a harbinger a new phase of purchasing by global phone operators, Mr. Vestberg said, as they compete to sell mobile broadband services to the rapidly expanding ranks of smartphone users. Ericsson expects the number of mobile broadband users around the world to rise 40 percent to 2.1 billion by the end of this year from 1.5 billion in 2012.

By the end of this year, 3 in 10 cellphone users around the world will be operating smartphones and subscribing to mobile broadband service, Ericsson predicted. Demand for fast wireless Internet will in turn lift demand for Ericsson’s networks, Mr. Vestberg said. In the past quarter, he said, 40 percent of all cellphones sold worldwide were smartphones.

Operators, recognizing the strong consumer interest in mobile broadband, are stepping up their orders for new data networks that can handle the heavy traffic demands on their grids.

“Operators and customers are focusing now on mobile broadband,” Mr. Vestberg said. “We are clearly seeing a change in their behavior.”

Article source: http://www.nytimes.com/2013/02/01/technology/ericsson-sales-rise-on-spending-to-upgrade-mobile-networks.html?partner=rss&emc=rss

Ericsson to Take $1.2 Billion Charge on Writedown of Cellphone Venture

In announcing the charge of 8 billion Swedish kronor, or $1.2 billion, Ericsson told investors Thursday that the charge would reduce its earnings in the fourth quarter by a corresponding 8 billion kronor. Shares of Ericsson fell 1.8 percent to 63.15 kronor in Stockholm trading.

ST-Ericsson, created in February 2009 with ST Microelectronics, a French semiconductor maker, has generated $2.7 billion in losses since its start. On Dec. 10, ST Microelectronics said it intended to “exit” the venture after an unspecified transition period.

Ericsson said it did not plan to buy its French partner’s 50 percent stake in ST-Ericsson — a decision that could cast further doubt on the future of the business, which is based in Geneva and employs 5,090 workers.

Bengt Nordstrom, the chief executive of Northstream, a Stockholm-based industry consultant to mobile operators, said that Ericsson, based in Stockholm, could eventually shut down ST-Ericsson after trying to sell it off wholly or in parts. “That is certainly a possibility,” Mr. Nordstrom said.

At the time the venture was announced in August 2008, the two partners predicted that the new company, which combined Ericsson’s mobile platforms business and ST Microelectronic’s ST-NXP wireless businesses, would become a world leader in supplying chips and components to Samsung, Nokia, Sony Ericsson, LG and Sharp.

But ST-Ericsson, which attempted to exploit the value of both partners’ intellectual property and patents on components for 2G and 3G handsets and modems using Long Term Evolution or LTE technology, has never made a profit as it attempted to woo business from industry leaders in Asia and the U.S. component maker Qualcomm.

“We don’t have the kind of silicon industry in Europe that exists in the United States and Asia so this was always a difficult attempt,” Mr. Nordstrom said.

ST-Ericsson’s prospects also deteriorated, Mr. Nordstrom added, after the chief executive of Nokia, Stephen Elop, announced in February 2011 that Nokia would abandon its Symbian smartphone operating system for Microsoft’s Windows system.

ST-Ericsson had supplied components for Nokia’s Symbian handsets and had been one of the venture’s biggest customers, Mr. Nordstrom said.

One of the early pioneers in the mobile industry, Ericsson, whose researchers contributed essential patents to the GSM and 3G wireless standards, retreated from the handset business to focus on network gear. It remains the global leader but faces a challenge from Huawei, its fast-growing Chinese rival.

Ericsson completed its departure from the handset business last January, when it sold its 50 percent stake in the cellphone maker Sony Ericsson to its venture partner, Sony.

In the third quarter, Ericsson said that its profit plunged 42 percent to 2.2 billion kronor with a 600 million-kronor loss attributable to ST-Ericsson.

Ericsson said Thursday that about 5 billion kronor of the earnings charge reflected Ericsson’s new lower valuation of ST-Ericsson, while the remaining 3 billion kronor would be applied in 2013 to cover continued commitments to ST-Ericsson.

“During the process of exploring options, Ericsson will not speculate on the possible outcomes, timelines, and future strategic alternatives for ST-Ericsson assets,” the company said.

Article source: http://www.nytimes.com/2012/12/21/business/global/ericsson-to-take-1-2-billion-charge-on-writedown-of-cellphone-venture.html?partner=rss&emc=rss