Bloomberg News

Ericsson Says Vodafone Network Spending Plan Boon to Market (1)

November 21, 2013

Ericsson CFO Jan Frykhammar

“If in Europe we could get to half of the dynamics that we experienced in the U.S., it would be phenomenal, but we’re not there yet,” Jan Frykhammar, chief financial officer of Ericsson AB, said at the annual Technology, Media and Telecoms conference organized by Morgan Stanley. Photographer: Linus Hook/Bloomberg

Ericsson AB (ERICB), the world’s biggest supplier of wireless-networks equipment, said Vodafone Group Plc (VOD)’s plan to boost investments in infrastructure is a boon to the industry.

“If we are able to win the right footprint when companies like Vodafone modernize their network, that is good for us,” Ericsson Chief Financial Officer Jan Frykhammar said at a conference yesterday in Barcelona. “If they upgrade and continue with the same vendor, that should also be good.”

Ericsson is battling Nokia Oyj (NOK1V) and China’s Huawei Technologies Co. for contracts as carriers expand and upgrade their networks to support rising mobile video, music and data traffic. While revenue in the third quarter declined in North America and Japan as large coverage projects peaked, the European market is starting to shrug off effects of the financial crisis and carriers are spending more.

Ericsson, a supplier to Vodafone, is encouraged to see the carrier’s plan to invest more than 19 billion pounds ($31 billion) on its networks by 2016, Frykhammar said. The Stockholm-based equipment and services supplier is “heavily engaged” with Vodafone, he said.

In Europe, business is picking up with investments in faster networks, Ericsson Chief Executive Officer Hans Vestberg said last month. Several European markets are growing and margins are also improving, he said. Network-modernization deals, which are more labor-intensive and often less profitable, are ending and business is shifting toward more lucrative capacity projects, the CEO said at the time.

Phenomenal Dynamics

Ericsson fell 0.8 percent to 81.80 kronor at 9:42 a.m. in Stockholm. It had added 27 percent this year through yesterday.

“If in Europe we could get to half of the dynamics that we experienced in the U.S., it would be phenomenal, but we’re not there yet,” Frykhammar said at the annual Technology, Media and Telecoms conference organized by Morgan Stanley.

Ericsson has 36 percent of the world’s wireless-infrastructure market, ahead of Huawei’s 22 percent, Barclays Plc has estimated.

Alcatel-Lucent SA, which has a strong position in the U.S., got 35 percent of its revenue last year from U.S. phone companies Verizon Communications Inc. (VZ:US), AT&T Inc. and Sprint Corp. The company is restructuring after almost seven years of failed management changes and turnaround plans. Michel Combes, who took over as the unprofitable company’s CEO in April, wants to cut 10,000 jobs, has narrowed research spending on fewer technologies and is moving to sell 1 billion euros of assets by 2015.

U.S. Expansion

Alcatel’s possible asset sales could give competitors a shot at boosting their market share.

“We have not looked at Alcatel-Lucent assets,” Frykhammar said in an interview. “Our strategy is based on organic development. Of course when assets come to the market we have an obligation to our shareholders to look at them. As far as I know, Alcatel-Lucent assets are not for sale.”

Frykhammar said the U.S. is still an important market as carriers there will need to continue to invest in network improvements. Selling more software, which generally has higher profit margins, will be an important way to lift the company’s long-term profitability, he said.

U.S. carriers’ spending on building and servicing faster networks surpasses that of operators in regions such as Europe, Rajeev Suri, the head of Nokia’s networks business, said last week. North America was the only region where Nokia Solutions and Networks increased sales last quarter as it avoided less profitable deals elsewhere.

Long Time

“It takes a long time to win in the U.S. -- now we have T-Mobile, we have U.S. Cellular and now Sprint, so we are definitely making progress,” Suri said. “A year ago we couldn’t anticipate that we would have gotten this break with Sprint.”

As part of Sprint’s plan to spend $8 billion this year and next on capital expenses like network upgrades, the company selected Alcatel-Lucent, Samsung Electronics Co. and NSN to supply and manage the build-out.

“The U.S. market for us has a lot of opportunities if you think 12 to 16 months out,” Frykhammar said, citing small cells, the next wave of fourth-generation networks and next-generation television.

To contact the reporters on this story: Marie Mawad in Barcelona at mmawad1@bloomberg.net; Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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