Ericsson reported a boost in profit for Q4 2015, as it benefited from higher IP licensing fees and lower operating expenses, with its China business also recovering after a weak Q3.

The company inked a patent pact with Apple during the period, which included a settlement payment from Apple as well as ongoing royalties.

It also said that its IPR strategy, to generate value from investments in R&D, has been successful and over the last five years it has more than tripled its IPR licensing revenue. Following recent deals with the iPhone maker and Huawei, it “now has agreements in place with the majority of handset suppliers”.

While the company did not provide licensing revenue figures for Q4, for the full year the figure was SEK14.4 billion ($1.7 billion), up from SEK9.9 billion, and ahead of the previous estimate of SEK13 billion to SEK14 billion.

For the three months to December, Ericsson reported a profit of SEK7.0 billion, up 68 per cent from Q4 2014, on revenue of SEK73.6 billion, up 8 per cent year-on-year. However, in comparable units and currency, revenue decreased by 1 per cent.

Networks performance
Sales in the networks business increased 9 per cent to SEK37.3 billion in Q4, although in comparable units and currency, the performance was flat.

It said that for North America, mobile broadband investments remained stable in Q4, although for the full year investments were slow as operators focused on cash flow in order to finance acquisition and spectrum buys.

jan_frykhammar_175x175Jan Frykhammar, CFO of Ericsson, told Mobile World Live that “although we had a strong finish in Q4, it’s not back to the levels that the market was in 2014. And we don’t model that going into 2016, either. We believe it will continue to be stable with some pockets of opportunity for growth, driven by capacity, whether it is software or hardware”.

The company also saw a recovery in mainland China, after a weak Q3. “The theme of 2015 has been coverage deployments of 4G. Our scenario for 2016 is that will also be the main theme for mainline China, but you can always have quarters of weakness or strength – that, unfortunately, is the business reality”, he continued.

Emerging markets such as India, Indonesia and Mexico remained strong, while markets like Russia, Brazil and parts of the Middle East continued to be weak, mainly due to macro-economic environments.

“There will be a continued challenge in some markets driven by the macroeconomic things, but I also think that the underlying drive toward building 4G networks will continue. In some countries they have more challenges with currencies and so forth, but it’s the 4G era for emerging markets in general,” the CFO said.

Investments in Europe were driven by the transition from 3G to 4G and capacity enhancements.

Global services
Reported sales in the Global Services unit increased by 3 per cent year-on-year to SEK30.7 billion, with increases in professional services and managed services partially offset by a slowdown in network rollout. However, adjusted for comparable units and currency, sales decreased by 4 per cent.

It said that within its Professional Services segment, sales in consulting and systems integration continued to show good growth driven by OSS and BSS transformation projects. The “good momentum” in Managed Services continued, as operators look to improve network performance, quality and reliability, while still maintaining costs.

2016 focus
Looking forward, Ericsson said that while conditions remain tough in some markets, “we continue to work to capture business opportunities as more markets shift to 4G”.

Frykhammar said that in many developed countries, “we see more and more countries becoming advanced 4G markets, we are more into capacity-type investments based on video and data traffic uptake and related quality enhancements you need to make to the network from time to time”.

The company also said that “after a period of investing, in order to create growth, we also need to improve earnings”. This will involve a stronger focus on software sales and recurring business as a complement to the “already strong Professional Services business”.

“If you think about the targeted areas in three phases, the first was that we invested in R&D and M&A to create relevant portfolios and solutions. In the phase that we have been in so far, it has been to build business, to create projects, for customers to recognise that we are a player in OSS, BSS, TV and media and so forth. The next phase is to also focus on making sure we have a good return on the investments, that is what we need to be clear on,” the CFO said.

And Ericsson also said that with regard to its costs and efficiency efforts, it is “closely monitoring market and business development and will take all necessary action”.

Cisco update
Frykhammar said that with regard to the company’s partnership with Cisco: “We are hopefully going to be able to have some joint sessions at Mobile World Congress, where we present the status and hopefully some good wins as well. The main focus in 2016 is of course to build business momentum here, and get some tangible business wins early. We want a business drive here.”

He continued: “The momentum on both sides has been very good, in the sense that the sales force on both sides is very eager. Our biggest task now is to certify our service engineers on Cisco – we have Cisco certified engineers today, but we don’t have that on a global basis.”