Ericsson Q3 boosted by cost cuts, but China weighs

Ericsson Q3 boosted by cost cuts, but China weighs

23 OCT 2015

A reduction in operating expenses boosted Ericsson’s bottom line for the third quarter of 2015, but a slowdown in 4G networks in China cast something of a shadow over the numbers.

The company reported a profit of SEK3.1 billion ($364.5 million), up 19 per cent year-on-year, on revenue of SEK59.2 billion, up 3 per cent. Excluding restructuring charges of SEK0.6 billion, operating charges decreased to SEK14.3 billion from SEK15.2 billion, due to an ongoing cost and efficiency programme and from cost adjustments related to lower business volume.

Adjusted for comparable units and currency, sales decreased by 9 per cent, mainly due to lower business in Japan, Russia and Brazil.

Sales in North America were up 2 per cent year-on-year to SEK14.4 billion. Mobile broadband sales in this region remained stable quarter-on-quarter (but down year-on-year), as “operators continued to focus on cash flow optimisation and consolidation, leading to lower investment levels compared to the same period last year”.

But sales in North East Asia, which includes China and Japan (and is Ericsson’s second biggest geographic region), decreased by 10 per cent to SEK6.3 billion. With operators in the region looking to new business opportunities, Ericsson said its acquisition of Sunrise Technologies has “strengthened its position to support customers in their transformation”.

jan_frykhammar_175x175Jan Frykhammar (pictured), CFO of Ericsson, told Mobile World Live: “The underlying demand in China continues to be strong, the buildout of 4G continues. In this particular quarter, there was a slowdown in the deployment pace, but I don’t think there’s any big drama around that, it happens sometimes when you have these big rollout projects.”

Net sales in its Networks business decreased by 4 per cent to SEK28.8 billion, while growth in Global Services increased by 11 per cent to SEK27.1 billion.

Adjusted for comparable units and currency, the networks slowdown was even more evident, shrinking by 15 per cent. This was attributed to lower sales in the Middle East, North East Asia, as well as Northern Europe and Central Asia.

With regard to Global Services, Frykhammar said that “we have never had a higher share of services in the business,” accounting for 46 per cent of revenue, compared with 49 per cent for networks.

Driving growth is “managed services, an offering we have had in the portfolio for many years, and that targets efficiency. And, also more so this year than last year, it’s system integration at the back-end of a lot of these OSS/BSS transformation projects”.

Big switch?
With Global Services outperforming Networks at least in the short term, there is the possibility that it will displace Networks as Ericsson’s largest business. “If that happens driven by top-line growth in all business, that’s fine. The reality is that the networks market is not growing as fast as the professional services market is,” the CFO said.

The company ended the period with 116,240 employees, compared with 117,183 at 30 June. During the quarter, close to 5,000 employees left the company, which was partially offset by recruitments to Ericsson’s Global Service Delivery Centres, employees joining through acquisitions, and insourcing from new managed services contracts.

Looking forward, Frykhammar told Mobile World Live that “if you look at the trends in the third quarter, many of them will be prevailing in the fourth quarter as well. Meaning we have good momentum in professional services, we have won a couple of important TV agreements, let’s see if we manage to get some topline around those in the fourth quarter.”

“For the networks business it is important that the North American market is stable, and let’s see if China comes back – if not I’m sure it will come back early next year. It’s really no major swings in the trends,” he continued.

“Typically Q4 is our biggest quarter in terms of topline, and I think that will be the case this year as well.”

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Steve Costello

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