Bloomberg News

Ericsson Tumbles as U.S. Spending Cuts Hit Net: Stockholm Mover

January 26, 2012

Jan. 25 (Bloomberg) -- Ericsson AB, the world’s largest maker of wireless networks, fell the most in more than four years in Stockholm as fourth-quarter profit missed analyst estimates on slowed spending from North American customers.

Net income declined to 1.15 billion kronor ($170 million) from 4.32 billion kronor a year earlier, Stockholm-based Ericsson said today. Analysts surveyed by SME Direkt had predicted profit of 4.24 billion kronor, the average of 40 estimates.

“All the major numbers were disappointing,” Robert Jakobsen, an analyst with Jyske Bank in Silkeborg, Denmark, said by telephone. “Operator spending is clearly reduced especially in areas that have been very good for Ericsson in the last couple of years. And they already indicated a slowdown, so the estimates reflected that, and still it was worse.”

Ericsson is pursuing contracts to upgrade networks in Europe to faster technologies that let customers access the Internet at desktop speeds from smartphones and tablets. These so-called modernization contracts will deliver smaller margins than ongoing contracts for at least two years, Chief Financial Officer Jan Frykhammar said at an investor meeting Nov. 9.

Ericsson shares plummeted 15 percent to 58.8 kronor at 9:10 a.m. in Stockholm trading, the biggest fall since Oct. 16 2007 and the largest decliner on the Stoxx 600 Technology Index, which was down 2.3 percent. Alcatel-Lucent, France’s largest telecommunications equipment supplier, fell as much as 8.7 percent in Paris to 1.37 euros, the most in two months.

Sales Missed Estimates

Quarterly revenue at Ericsson gained 1 percent to 63.7 billion kronor, missing the 67.4 billion-krona average estimate of 28 estimates in a Bloomberg survey. Ericsson said it took 0.7 billion kronor in restructuring charges in the quarter.

“In the fourth quarter we saw weaker development in networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernization projects in Europe, and a higher services share,” Chief Executive Officer Hans Vestberg said in the statement.

Worldwide spending on wireless infrastructure equipment may have grown 9.1 percent last year to $42.5 billion, marking its first expansion since 2008 according to Englewood, Colorado- based market researcher IHS iSuppli.

Vestberg also has the industry’s largest patent portfolio, and aims to be number one in operations and billing software as well as wireless chipmaking through joint venture ST-Ericsson. Ericsson this month closed its acquisition of Telcordia Technologies Inc., which makes customer management and charging systems.

Expanding Market

The market is set to continue expanding to $45.1 billion in 2015, fuelled by upgrades to serve smart device users, IHS iSuppli said. So-called fourth-generation systems are expected to overtake third-generation systems in 2013, IHS iSuppli said.

Nokia Siemens Networks and Huawei Technologies Co. compete with Ericsson to control base stations used by third-generation, or 3G, mobile-broadband networks and win contracts for newer fourth-generation networks. Sales of older second-generation networks, which cater to voice and text message users, are declining.

Ericsson contract wins in the quarter included modernization of 6,000 sites and an upgrade to fourth-generation technology for Swisscom, as well as an expansion of its network management agreement with Bharti Airtel in India.

Chipmaking Venture

Chipmaking venture ST-Ericsson Jan. 23 reported a fourth- quarter loss of $231 million on sales that declined 29 percent to $409 million euros. The unit, owned with STMicroelectronics NV, is struggling to build up new smartphone processor lines for Android and Windows Phone as sales of longtime customer Nokia Oyj’s older Symbian models decline.

Sony Ericsson Mobile Communications AB reported a fourth- quarter net loss of 207 million euros ($266 million) on sales that slid 16 percent to 1.29 billion euros as competition in the Android smartphone segment increased. Sony Corp. is expected to complete its purchase of Ericsson’s half of the venture for 1.05 billion euros by the end of February.

--Editors: Kim McLaughlin, Kenneth Wong.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at

To contact the editor responsible for this story: Kenneth Wong at

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