Ericsson’s Q4 sales and net income were given a welcome boost by its recent patent licensing deal with Samsung. Without it, the performance of the Swedish supplier would have looked a lot more subdued, particularly at its networks division, which accounts for around half of the firm’s revenue.
The Samsung factor meant network sales remained flat during Q4, dipping only 1 per cent, quarter on quarter, to SEK34.8 billion ($5.4 billion). Excluding Samsung, however, and network sales would have fallen by a hefty 10 per cent over the same period.
The eagerly-watched gross margin was also given an enormous Q4 boost, coming in at 37.1 per cent (but only 32.9 per cent without the Samsung bonus).
Jan Frykhammar (pictured), Ericsson CFO, nonetheless told Mobile World Live that performance was “in line with expectations”.
Ericsson’s network strategy is to shift from low-margin coverage projects to higher-margin capacity upgrades. This is happening, insists Frykhammar, but at a gradual pace.
“In previous quarters our top-line has benefitted from big projects in North America and Japan, but those are coming to an end,” added Frykhammar. “We are, however, seeing positive developments in Russia and China. We expect more capacity projects this year, which have higher margins, although this might mean a slightly lower top line.”
And Frykhammar pointed out that the 32.9 per cent gross margin achieved in Q4 (without Samsung) is still higher than the 31.1 per cent registered in Q4 2012.
He added, too, that the fourth quarter is traditionally a tough one for gross margins as operators tend to choose that time to allocate more spending on network modernisation (rather than on higher-margin capacity building).
Full-year 2013 gross margin (excluding Samsung) was 32.9 per cent, only a slight improvement on the 31.6 per cent the year before.
The Samsung agreement boosted overall Q4 revenue by a substantial SEK4.2 billion, taking total sales for the quarter up to SEK67 billion and only a shade above Q4 2012 (SEK66.9 billion).
Full-year 2013 sales were SEK227.4 billion, almost identical to the SEK227.8 billion during 2012.
Net income was given a SEK3.3 billion boost by Samsung, taking it to SEK6.4 billion for the quarter. It’s a vast improvement on the SEK6.3 billion net loss during Q4 2012, but that included a one-off SEK8 billion charge related to its chip joint venture ST-Ericsson.
Full-year net income was SEK12.2 billion compared with SEK5.9 billion in 2012.
“Our focus on profitability started to pay off and operating margin for the group gradually improved in 2013, despite significant currency headwind, driven primarily by improvements in networks and network rollout,” said CEO Hans Vestberg in a statement.
Operating margin (excluding joint ventures) was 13.5 per cent during Q4 2013, up from 7.1 per cent in the same quarter last year.
Vestberg also noted that LTE tenders in China continue and that two major operators there have chosen Ericsson.