Ericsson Stock Jumps as Wireless Sales Propel Surge in Profit
April 27, 2011, 7:22 AM EDTBy Diana ben-Aaron
April 27 (Bloomberg) -- Ericsson AB, the world’s largest maker of mobile-phone networks, rose the most in a year in Stockholm trading after growth in wireless-broadband equipment sales helped first-quarter profit more than triple.
Ericsson gained as much as 9.9 percent to 88.45 kronor, the biggest intraday jump since April 23, 2010. The Stockholm-based manufacturer said in a statement that net income surged to 4.1 billion kronor ($674 million) from 1.26 billion kronor a year earlier. Profit beat the 3.06 billion-krona average of 19 analyst estimates compiled by Bloomberg.
“They’re seeing very, very strong demand in networks and it’s from the right regions, that is North America, Japan, Korea, which are very high-margin” markets, said Haakan Wranne, a Stockholm-based analyst at Swedbank with a “buy” recommendation on the stock. “People felt ahead of the report that Ericsson would have a lot of less profitable sales from India and modernization contracts in western Europe that would kill margins in the quarter, and this didn’t happen.”
The manufacturer is profiting as third-generation wireless systems that enable high-speed Internet access spread to developing markets, paving the way for greater adoption of data- hungry devices such as Apple Inc.’s iPhone and tablet computers. Mobile broadband drove growth in Russia and India, Ericsson said. Network sales in North America, where Ericsson sells to all the big U.S. carriers, gained 39 percent.
Ericsson was up 9.1 percent as of 1:15 p.m. The stock has gained 12 percent this year, valuing the company at 286.3 billion kronor.
Sales Rise 17%
First-quarter sales rose 17 percent to 53 billion kronor, beating the 49.1 billion-krona average estimate of 29 analysts.
Industrywide mobile-data traffic more than doubled last year and will probably continue doubling every year in the near term, Ericsson said. The company forecast that worldwide mobile- broadband subscriptions will double to 1 billion this year.
India approved 3G-technology licenses last year, opening the way for companies including Aircel Ltd. and Vodafone Essar Ltd. to order equipment from Ericsson. The Swedish company appointed Fredrik Jejdling in early April to become head of the India business in June.
The March 11 earthquake in Japan will probably cause delays in delivering some products, Chief Executive Officer Hans Vestberg said. Ericsson is seeking alternative sources of components and expects to catch up by the end of the third quarter, he said.
Price Pressure
“If there’s something on the bleak side in the report, it would be the Japan situation,” Swedbank’s Wranne said. “Otherwise, the strong demand will continue, the next few quarters at least.”
Ericsson also faces challenges as the wireless market matures and carriers merge to cut costs. VimpelCom Ltd. agreed this month to acquire Wind Telecom SpA, forecasting synergies of $2.5 billion, and AT&T Inc. said March 20 that its planned merger with T-Mobile USA could deliver $40 billion in savings.
Deutsche Telekom AG and France Telecom SA agreed to set up a purchasing venture that would let the two former phone monopolies save a combined 1.3 billion euros annually by jointly buying equipment. CEO Vestberg is counting on higher mobile-data use and machine-to-machine communications to buffer slowing growth in voice traffic.
Huawei Technologies Co., China’s biggest phone-equipment maker, said today it aims to more than triple annual sales to about $100 billion in the next five to 10 years as it expands into cloud computing and small-business networks.
Product Pricing
Consolidation in the industry, including Ericsson’s acquisition of former Nortel Networks Corp. assets, hasn’t stemmed a decline in equipment prices.
Nokia Siemens Networks reported a first-quarter operating loss that narrowed to 142 million euros on sales that increased 17 percent to 3.17 billion euros. The Espoo, Finland-based venture between Nokia Oyj and Siemens AG aims to complete its $975 million takeover of Motorola Solutions Inc. wireless assets this week.
ST-Ericsson, the Swedish manufacturer’s chipmaking partnership with STMicroelectronics NV, said yesterday that its first-quarter net loss widened to $178 million from $154 million a year earlier as sales fell 27 percent to $444 million.
Sony Ericsson Mobile Communications AB, the Swedish company’s mobile-phone venture with Sony Corp., reported first- quarter net income of 11 million euros, beating analysts’ projection for a loss, as its Android smartphone prices topped estimates.
--Editors: Tom Lavell, Jim Silver.
To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
