Bloomberg News

Ericsson Net Income Rises on China, Latin America Orders

October 20, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 20 (Bloomberg) -- Ericsson AB, the world’s largest maker of wireless networks, reported third-quarter profit and sales that topped analysts’ estimates as phone companies in Latin America and China increased spending.

Net income climbed to 3.82 billion kronor ($573 million) from 3.68 billion kronor a year earlier, Stockholm-based Ericsson said today in a statement. Analysts in a Bloomberg survey had predicted profit of 3.66 billion kronor. Sales rose 17 percent, also surpassing estimates.

North American carriers such as AT&T Inc. and Verizon Communications Inc. spent less than before to fortify their networks for increasing numbers of smartphone and tablet users, while those in other regions stepped up their capacity additions. Ericsson’s gross margin declined 4 percent to 35 percent as it increased its proportion of network upgrades in Europe, which have smaller margins than new installations.

“Revenue was very strong and that is important given the macro situation,” said Haakan Wranne, a Stockholm-based analyst at Swedbank. “Fear of a decline in demand has been reflected in the share price and this report shows that so far demand is still there.”

Ericsson rose as much as 3.9 percent to 68.05 kronor in Stockholm trading and was up 3.1 percent as of 9:17 a.m. Before today, the stock had dropped 16 percent.

Beating Sales Estimates

Third-quarter sales reached 55.5 billion kronor, beating the 52.6 billion-kronor average estimate of 30 analysts. It was the fourth consecutive quarter where the company beat analysts’ sales estimates.

Global sales of wireless infrastructure equipment are expected to reach $41.3 billion this year, rising to $48 billion in 2015, market researcher Gartner Inc. said. Ericsson was the market leader in the second quarter with a share of about 40 percent, according to researcher Dell’Oro Group.

Nokia Siemens Networks and Huawei Technologies Co. compete with Ericsson for sales and maintenance of stations used by third-generation, or 3G, mobile-broadband networks and contracts for newer fourth-generation networks.

“We think we are growing faster than the market at the moment, and we are number one in the areas that are having fastest growth in the industry,” Ericsson Chief Executive Officer Hans Vestberg said at a press conference in Stockholm today. “We are number one in mobile broadband and services, and with the acquisition of Telcordia, we will be number one in operations and business support systems as well.”

Ericsson agreed in June to buy Telcordia Technologies Inc., adding software and services for clients who choose not to outsource their network management.

Smartphone Data Push

Services sales gained 7 percent in the quarter as Ericsson added network management and system integration contracts.

Ericsson’s contract wins in the quarter included a five- year managed services agreement with Bharti Airtel in Africa. The company also announced it will open a fourth global network operations center in China, where it has taken over field maintenance for China Mobile in one local province.

“If world economies deteriorate in a big way, that will obviously affect Ericsson but we will still have an underlying cushion from operators needing to meet demand for data traffic,” Wranne said. “That’s exploded in the last few years.”

Data-Hungry Devices

Ericsson and other network companies benefit from greater adoption of data-hungry devices such as Apple Inc.’s iPhone and tablet computers.

Chipmaking venture ST-Ericsson reported a third-quarter loss that widened to $211 million as sales slumped, reducing Ericsson’s earnings by 700 million kronor. Sony Ericsson Mobile Communications AB, the company’s handset joint venture with Sony Corp., reported net income that “rounded below 500,000 euros” and added 100 million kronor to Ericsson’s profit.

Sony is reviewing the 50-50 partnership because the business has become more important for Japan’s largest exporter of consumer electronics with demand for smartphones and computers surging, a person with knowledge of the matter said this month.

--Editors: Simon Thiel, Kenneth Wong.

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 at kwong11@bloomberg.net


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