Ericsson sales rise as currency shifts hit profitability

Ericsson sales rise as currency shifts hit profitability

24 OCT 2014

Ericsson saw sales increase in the third quarter, driven by increased activity in its networks business, although profit suffered as the result of the Swedish krona losing value to the US dollar.

Sales for the period were SEK57.6 billion ($7.94 billion), representing a 9 per cent year-on-year increase and 5 per cent improvement on the prior quarter.

Network sales were SEK30 billion (up 13 per cent year-on-year), with Global Services generating SEK24.5 billion (up 2 per cent). The sales growth was mainly driven by activity in the Middle East, China, India and Russia, although it was partly offset by slowed business in North America.

Net profit was SEK2.6 billion, down 13 per cent on the SEK3.0 billion reported in Q3 2013. The main cause of the profit fall was a shift in exchange rates which resulted in hedge contracts losing SEK1 billion in value.

“First and foremost, the most important thing is that the company’s underlying profit improved compared to a year ago,” Jan Frykhammar (pictured), Ericsson CFO, told Mobile World Live. The company said in its earnings release that it had seen “stable improvement” across all segments.

Frykhammar said the business mix in the company’s networks business is more balanced between coverage and capacity work than it has been in recent quarters. He added that the business is “very much driven” by 4G, as operators invest to boost 3G coverage to complement the faster networks.

Gross margin increased to 35.2 per cent year-on-year, as a result of the improved business mix, higher revenue from intellectual property and lower restructuring charges.

Operating income was SEK3.9 billion, down 8 per cent year-on-year, due mainly to higher operating expenses related to modems (a business the company is withdrawing from) and the Mediaroom unit.

Frykhammar said that during the quarter there was a weakness in North America, with Ericsson having a lower share of capacity projects in the region. Sales in North America fell 3 per cent to SEK14 billion, and the executive noted that there is “a little bit more of an uncertainty” around the market for the next quarter.

India is “moving very well”, according to the CFO, with the market seeing a 56 per cent increase in sales to reach SEK2 billion. The Middle East region saw sales increase 38 per cent year-on-year to reach SEK6.0 billion.

Russia also had a strong quarter, with mobile broadband infrastructure investments the main driver of the 7 per cent improvement in sales in the Northern Europe and Central Asia region, which totalled SEK3.2 billion.

With Ericsson covering 180 markets, which differ greatly, Frykhammar noted: “There’s always going to be ups and downs.”

The company’s CEO and president, Hans Vestberg, noted in his published statement that mobile broadband sales increased year-on-year as key contracts started to deliver revenue during the third quarter, including LTE work in China and Taiwan.

Sales in European markets, particularly the UK and Germany were strong, although southern Europe continued to be “weak”, according to Vestberg.

The CEO added that Ericsson is continuing to execute on its strategy of improving profitability in the core businesses so it can invest in targeted areas such as IP networks, cloud, TV and media, and OSS and BSS.

Author

Tim Ferguson

Tim joined Mobile World Live in August 2011 and works across all channels, with a particular focus on apps. He came to the GSMA with five years of tech journalism experience, having started his career as a reporter... More

Read more

Related

Tags