Ericsson’s sales were hit by reduced demand in North America and Japan during the first quarter of 2014, but profit was boosted from the high margins generated by network capacity work.

The infrastructure market leader reported net sales of SEK47.5 billion ($7.24 billion) for the first quarter of the year, down 9 per cent year-on-year. The sales decline impacted both Ericsson’s Networks and Global Services units.

Speaking to Mobile World Live, Ericsson CFO Jan Frykhammar (pictured) explained that sales in the US and Japan have declined due to large 4G implementation projects coming to an end.

However, 4G deployment in China and 3G roll-outs in the Middle East (Iraq, Pakistan and Saudi Arabia) and Latin America (Brazil and Chile) helped to partially offset the revenue decline.

Frykhammar said network capacity and quality improvement work continues to provide steady revenue with high margins, helping to boost net income for the quarter, which was up 41 per cent year-on-year at SEK1.7 billion.

“What is important is that the underlying business continues to develop well. Capacity means higher margin for us,” Frykhammar commented. Operating margin for the quarter was 5.5 per cent compared to 4 per cent a year earlier.

The business mix during the quarter was largely driven by mobile broadband capacity projects, with Ericsson saying that a number of contracts will impact sales in the second half of the year.

Looking ahead, the Ericsson CFO said LTE will become more significant: “Now it will also be big in the mix in China and gradually bigger in the mix in Europe.”

LTE will be “the main driver for the radio business” over the next couple of years, according to Frykhammar. And while LTE will be an important marketing tool, it will also drive 3G build-out as GSM is no longer seen as an adequate backup if LTE coverage fails.

As an example of this trend, Ericsson was recently awarded a five-year contract by Vodafone to upgrade 2G and 3G networks and roll out 4G, as part of the operator group’s Project Spring initiative.

Discussing the increasing role of software and services for the infrastructure vendor, Frykhammer said hardware will continue to play a role but that revenue from support, billing and consultancy will continue to grow. “Over time there will be more and more software in the mix,” he said.

However, Frykhammar stressed that this shift will be an “evolution rather than revolution”.

Ericsson president and CEO Hans Vestberg also commented on the shift to software: “In a transforming ICT market, Ericsson continues to evolve through investments both into its core business and in new and targeted areas,” he said in a prepared statement.