Light Reading
Share price leaps as further customer investments in mobile network capacity helped Ericsson boost its margins in the second quarter.

Ericsson Leaps on Q2 Margin Boost

Ray Le Maistre
7/18/2014
50%
50%

Swedish giant Ericsson reported solid second-quarter financials Friday morning, the highlight of which was the consistent margin improvement driven by capacity (rather than coverage) investments by its operator customers.

Ericsson AB (Nasdaq: ERIC) spent much of 2012 and 2013 talking about how it was helping operators roll out new networks, a long-term and lower-margin exercise, but the company always said that would be followed by higher-margin capacity investments. And that's how it has turned out: The unknown, of course, is the duration and scale of those capacity investments, and not even Ericsson can predict that. (See Ericsson Flatlines in 2013, Trails Huawei and Ericsson Looks to Future as Q1 Sales Slump.)

Second-quarter revenues dipped slightly year-on-year to 54.8 billion Swedish kronor (US$8 billion), but gross and operating margins, as well as net income, all improved, as the table below shows.

Table 1: Ericsson Q2 2014 Key Financials

In SEK billions Q2 2014 Q2 2013 Change Q1 2014 Change
Revenues 54.8 55.3 -1% 47.5 15%
-- Of which Networks 29.0 28.1 3% 24.4 19%
-- Of which Global Services 23.1 24.9 -7% 20.4 13%
-- Of which Support Solutions 2.8 2.3 21% 2.8 2%
Gross margin 36.4% 32.4% Increase of 4 percentage points 36.5% Decrease of 0.1 percentage points
Operating margin 7.3% 4.5% Increase of 2.8 percentage points 5.5% Increase of 1.8 percentage points
Net income 2.7 1.5 76% 1.7 57%
Source: Ericsson

Investors liked what they saw, as Ericsson's share price jumped by 8% to SEK 85.85 in morning trading on the Stockholm exchange.

CEO Hans Vestberg, who earlier this year tipped Brazil to win the FIFA World Cup (close call!), noted that the company has continued to win new managed services deals -- 21 in the second quarter -- and is executing on 4G rollouts in China and Taiwan. (See APAC Fuels 4G Action.)

He also cited the vendor's BSS deal at T-Mobile US Inc. as "one of the largest transformation deals we have ever done," and pointed to ongoing growth for the company's IP router platform business, which now has 120 customers and its own operating division. (See T-Mobile Swaps Out Amdocs BSS for Ericsson , Ericsson Creates Cloud & IP Unit, and Ericsson CEO's New Business Logic.)

Both Vestberg and CFO Jan Frykhammar cited the vendor's OSS/BSS and TV/media assets (part of the Support Solutions unit) as critical parts of the business for the future, and promised that further R&D investments will be pumped into these areas, along with the ongoing virtualization of the vendor's product portfolio. (See Ericsson Launches Cloud OSS, Ericsson Balances 'Open' Future, Legacy Past, Ericsson Shares its Media Vision 2020, Ericsson Bags Azuki Systems, and Euronews: Ericsson Buys Media Services Firm.)

Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

(1)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
7/18/2014 | 7:36:16 AM
Looking long term
The management team is keeping its faith in OSS, BSS< video, IP, cloud/virtualization, and Global Services as drivers for the future -- it's hard to pick holes in that approach.

Of course, that doesn't mean Ericsson will execute, but it's vision seems solid.
Flash Poll
From The Founder
Is your network built on 'The Old IP,' or are you part of 'The New IP' revolution?
LRTV Documentaries
A Cultural Shift for an OTT World

9|26|14   |   01:41   |   (3) comments


Telcos need to embrace a new approach to partnerships if they are to generate extra revenues quickly and give customers what they want.
LRTV Documentaries
New Skills Needed as Telecom, IT Collide

9|26|14   |   4:07   |   (1) comment


As telecom and IT collide, new technologies are emerging, new skills are needed and new opportunities for women are arising.
UBB Forum News
Do IP Networks Need An Overhaul?

9|25|14   |   02:01   |   (0) comments


As traffic levels ramp, do IP networks need new technologies and topologies?
LRTV Documentaries
Sprint Wields Its Influence in the Valley

9|25|14   |   3:09   |   (11) comments


Anne-Louise Kardas, Sprint's connection to startups in the Valley, explains how telcos can be innovative and find new opportunities with partners.
LRTV Documentaries
SDN, NFV & The Future of XO's Network

9|25|14   |   3:47   |   (0) comments


XO Communications COO Don MacNeil explains how cloud, SDN and NFV are altering its network requirements as well as changing data centers of the future.
UBB Forum News
The OTT Conundrum

9|24|14   |   01:39   |   (0) comments


What is holding back prosperous partnerships between telcos and the OTT players?
LRTV Documentaries
Putting Broadband to Work

9|24|14   |   01:26   |   (0) comments


High-speed broadband network rollout is key to telco strategies, but it's what happens after the network is built that counts.
Light Reedy
Light Reading's Women in Telecom Recap

9|24|14   |   0:55   |   (4) comments


Our first Women in Telecom breakfast was a huge success, and we hope you'll join us in London for the next event on November 6.
UBB Forum News
Monetizing Ultra-Broadband

9|24|14   |   01:43   |   (2) comments


Ultra-broadband networks need to be built, with fiber-to-the-premises the ultimate goal, but they need to be monetized, too.
LRTV Huawei Video Resource Center
Sales Director of INIT on Plug & Play Switch Devices

9|19|14   |   3:21   |   (0) comments


INIT Italy uses both the Huawei S5700 and S7700 series switches for the campus LAN environment. Sales Director Andrea Curti says their company chose these Huawei devices over others because of their performance, flexible scalability and plug-and-play features.
LRTV Huawei Video Resource Center
Saudi Arabia Upgrades Vocational Training System

9|19|14   |   3:31   |   (0) comments


The Technical and Vocational Training Corporation (TVTC) has 100,000 students, 150 government-owned institutions and oversees 1000 private institutes. The CIO of TVTC explains that Huawei devices have allowed them to manage multiple datacenters using just one software program, scientifically tracking the progress of students and teachers, saving them millions.
LRTV Huawei Video Resource Center
Huawei's Media Solutions Are Here to Stay

9|19|14   |   4:35   |   (0) comments


The current media revolution requires rapid upgrades in technology. New formats (HD, 3D, 4K etc.) and the subsequent explosion of file sizes demand sophisticated network and storage architecture. Social media and the multiple distribution channels require a robust asset management system. Gartner analyst Venecia Liu speaks about the current technological trends in ...
Upcoming Live Events
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
Half of the world's population will be connected to the Internet by 2017, but not just by smartphones and desktops.
Hot Topics
Facebook Pokes Around LTE Direct
Sarah Reedy, Senior Editor, 9/25/2014
Sprint Wields Its Influence in the Valley
Sarah Reedy, Senior Editor, 9/25/2014
Is Redbox Instant Shutting Down?
Mari Silbey, Independent Technology Editor, 9/30/2014
US Ignite Cultivates Gigabit Apps
Jason Meyers, Senior Editor, Utility Communications/IoT, 9/25/2014
Like Us on Facebook
Twitter Feed