Stockholm: Telecom gear maker Ericsson posted higher-than-expected core earnings on Friday but said the impact of the economic downturn on its key mobile networks market had become more notable.
The world’s top mobile equipment maker reported operating earnings of 6.9 billion Swedish crowns ($913.6 million) in the second quarter, excluding restructuring charges and its loss-making joint ventures.
That exceeded a mean forecast of 6.0 billion in a Reuters poll and 4.7 billion in the year-ago quarter.
“It’s a bit of a mix. On the negative side we have the cautious comments on the macro environment — this will get noticed and should be seen as a warning sign for the later part of the year,” West LB analyst Thomas Langer said.
Ericsson has so far been left largely unscathed by the economic downturn, sheltered by robust sales in China and strength in its services business, while growing its share of a shrinking market for mobile network gear.
Sales at the group rose to 52.1 billion crowns in the second quarter from 48.5 billion a year ago, just lagging the 52.9 billion seen by analysts. However, adjusted for comparable units and currency swings, sales were down 3%, it said.
Downturn Weighs More
However, many analysts expect worse to come as operators slash capital expenditure to weather deep recessions on both sides of the Atlantic, weighing on equipment sales for manufacturers such as Ericsson and competitor Nokia Siemens Networks.
Only this week, Norwegian operator Telenor cut its capital expenditure target as did Belgium’s second-biggest mobile operator, Mobistar, majority-owned by France Telecom, and analysts at Morgan Stanley said more spending cuts were likely to follow.
“The effects of the global economic climate on the mobile infrastructure market are now more notable, especially in markets with currencies under pressure and tougher credit environment,” said Ericsson chief executive Carl-Henric Svanberg.
Svanberg, due to step down at the turn of the year and assume the chairmanship of BP, said the firm’s cost savings target remained at 10 billion Swedish crowns ($1.32 billion), from the second half of 2010.
While Ericsson has managed to safeguard earnings in the face of the financial crisis, some of its smaller rivals are hurting.
The NSN joint venture of Nokia and Siemens, the world No. 2 mobile networks maker, skidded to a second-quarter operating loss and France’s Alcatel-Lucent, due to issue its April-June report on 30 July, ran a loss in the first three months of the year.
Ericsson and China’s Huawei Technologies, which shot to the No. 3 spot in the mobile networks market in the first quarter, have been winning market share this year at the expense of NSN and Alcatel-Lucent.
Analysts also saw some upbeat signals in the report.
“On the positive side we have the margins, that were better than expected,” Langer of West LB said. “This compensates for slightly weaker sales.”
The company reported gross margin of 36.3% in April through June, above the mean forecast of 35.7% seen by analysts but down from the 37% posted a year ago.