Ericsson Q4 sales impress, profitability hit

Ericsson Q4 sales impress, profitability hit

Stockholm: Ericsson reported flat to lower fourth quarter margins as less lucrative network rollouts in new markets like India countered strong demand for smartphone equipment that lifted sales and profits.

The world’s biggest mobile network gear maker posted forecast-beating sales on the back of strong demand for mobile broadband equipment to support growing use of smartphones like Apple iPhone and tablets like Samsung’s Galaxy.

But an increasing proportion of network rollout projects, including initial 3G rollouts in India, and network modernization projects, meant the company’s gross margin slipped and the operating margin was flat, quarter-on-quarter.

Rollout projects include more hardware and less high-margin software. “Looking at operating income, it’s a bit disappointing that we see Ericsson today with a strong pick-up in sales, but no pick-up in the operating margin," said Morten Imsgard, analyst at Sydbank.

“It might be challenging to keep up the good margins seen in the past couple of quarters."

Ericsson’s gross margin slipped to 37% from 39% in the July-September period and its operating margin was unchanged at 13%.

Operating profit excluding joint ventures and restructuring in the seasonally strong quarter was 8.4 billion crowns ($1.28 billion), against analysts’ 8.2 billion crown forecast in a poll and 7.5 billion crowns in the year ago period.

While 2009 and 2010 were tough years, the market for telecom equipment is finally showing signs of recovery.

“We expect the strong uptake for mobile broadband to continue in 2011, with number of mobile broadband subscriptions expected to double and hit one billion already this year," Ericsson chief executive Hans Vestberg said in a statement.

Ericsson saw its sales rise 7% for comparable units and excluding currency effects in the fourth quarter.

Sales totalled 62.8 billion crowns beating all forecasts in the poll. Ericsson’s key Networks unit, its biggest revenue generator, reported sales growth of 14% year-on-year.

“It is the first time in many quarters where you can see growth in the company, which one almost couldn’t have expected... That is important," said Greger Johansson, analyst at Redeye.

Nicolas Von Stackelberg at Macquarie Research said he expected the company’s shares to rise at the market open.

“When you exclude restructuring the numbers are somewhat ahead of consensus, so that is a positive," he said.

Rivals Nokia Siemens Networks, a joint venture between Finland’s Nokia and Germany’s Siemens report on 27 January and Alcatel Lucent on 10 February.