Ericsson announced a sharp drop in profit for the second quarter of 2012, with growth in its Global Services unit failing to offset weakness in its Networks business.

In a statement, Hans Vestberg, the company’s president and CEO (pictured), noted an expected decline in its CDMA business, lower activity in China including weaker GSM sales, and reduced 3G revenue from Russia.

“In Global Services all areas showed good growth in the quarter due to operators' focus on operational efficiency and high project activities,” he said.

For the quarter to 30 June 2012, Ericsson reported a net income of SEK1.2 billion (US$172 million), down 63 percent from SEK3.2 billion year-on-year, on revenue of SEK55.3 billion, up 1 percent.

In addition to a lower profit from its Networks unit, the company also noted an increased loss for its ST-Ericsson silicon joint venture, due to a significant drop in sales to one of its largest customers – believed to be Nokia – and a continued decline in its legacy products.

Sales for Networks fell by 17 percent year-on-year to SEK27.8 billion. This was partially offset by growth of 26 percent in global services, to SEK24.1 billion.

Ericsson noted that its business mix, with a higher share of less lucrative coverage projects than capacity projects, was unchanged during the period and is expected to prevail in the short term.

The Swedish firm said the negative gross margin impact from network modernisation projects in Europe will start to gradually decline at the end of 2012.

“We continue to stay close to our customers to monitor the impacts of macroeconomic development and political uncertainty in certain regions on their investments. In customer conversations it is clear that the fundamental drivers for increased data traffic are unchanged”, Vestberg said.

The company also noted a negative cash flow from operations of SEK1.4 billion, impacted by “high working capital mainly due to late invoicing.”