& cplSiteName &

Ericsson Looks to Future as Q1 Sales Slump

Ray Le Maistre
4/23/2014
50%
50%

Ericsson suffered a 9% slump in revenues during the first quarter of 2014 as major 4G network rollout projects in the US and Japan tailed off, but the vendor's management highlighted improving margins, and said sales will pick up later this year. (See Ericsson Reports Q1.)

CEO Hans Vestberg and CFO Jan Frykhammar also stuck to their oft-repeated analysis of business trends -- major network rollouts deliver higher revenues and lower margins, which are then followed by lower revenues and higher margins as operators add capacity -- and stressed that Ericsson AB (Nasdaq: ERIC)'s portfolio of mobile broadband infrastructure, video-related systems, OSS/BSS assets, and large services division is well suited to the long-term needs of communications service providers.

But it's the numbers that investors react to, and the 9% year-on-year dip in revenues to 47.5 billion Swedish kronor (US$7.24 billion) sent Ericsson's share price down by 4.5% to SEK82.35 in morning trading on the Stockholm exchange.

The numbers, though disappointing, do conform to the trends highlighted at the end of 2013 and are in line with the consistent story told by management, as gross and operating margins improved during the first quarter. (See Ericsson Flatlines in 2013, Trails Huawei.)

Table 1: Ericsson Q1 2014 Key Financials

In SEK billions Q1 2014 Q1 2013 Change Q4 2013 Change
Revenues 47.5 52.0 -9% 67.0 -29%
- Of which Networks 24.4 28.1 -13% 34.8 -30%
- Of which Global Services 20.4 21.5 -5% 27.2 -25%
- Of which Support Solutions 2.8 2.4 13% 5.1 -46%
Gross margin 36.5% 32.0% Increase of 4.5 percentage points 37.1% Decrease of 0.6 percentage points
Operating margin 5.5% 4.0% Increase of 1.5 percentage points 13.5% Decrease of 8.0 percentage points
Net income 1.7 1.2 42% 6.4 -73%
Source: Ericsson

CEO Vestberg also noted that, as a result of new network rollout contracts won by Ericsson (some announced, some not), revenues would improve during the second half of 2014, but this would probably result in lower margins.

Some of that growth is likely to be coming from Europe, where Ericsson has been awarded a significant deal as part of Vodafone's Project Spring program. (See Euronews: Ericsson Lands 'Project Spring' Deal.)

China is also a very active market currently, as the country's three main operators continue to build out their 3G and 4G networks. Ericsson noted that its revenues from China rose by 46% year-on-year during the first quarter, but that was from a very low base last year.

The company's main message to the market is that it believes it is well placed to be "very relevant" to the market for the long term, given its focus on mobile broadband, video systems, OSS/BSS, routers, and smartphone modems. (See Ericsson Bags Azuki Systems.)

That portfolio, along with the company's R&D work in SDN and NFV, is in line with what network operators are looking for, said Vestberg. The CEO said that in his conversations with customers, the main topics they talk about are: network performance, and the need to optimize for data traffic, which plays to Ericsson's Service Provider Information Technology (SPIT) assets; the potential of SDN and NFV to improve service creation and delivery and reduce operating costs; and the need to manage and deliver video traffic efficiently across multiple platforms to multiple devices. (See Ericsson Broadcasts its TV Anywhere Message, Ericsson Commits to OpenStack With Mirantis , and Ericsson CTO Bangs SDN Drum.)

He pointed to Ericsson's inclusion in AT&T's Domain 2.0 project, boasting of the company's presence as the only major equipment vendor involved in the carrier's plan to revamp its network around SDN and NFV. (See AT&T's Cloud Future Takes Shape.)

Vestberg also said that Ericsson is now involved in "all major OSS/BSS transformations," a major step forward from a year ago. The business impact of such engagements, though, is slower and less dramatic than the radio access network (RAN) deals that drive the majority of Ericsson's sales. The OSS and BSS projects "take a long time… these are major IT projects," noted Vestberg. "These will be big in the industry," he added, and have a positive impact on the professional services part of the vendor's business. (See CenturyLink, Ericsson Leverage Legacy for Agile IT.)

By "big," though, Vestberg does not mean such deals will generate RAN-type revenue streams: The greater value for Ericsson, beyond services and software sales, is the deeper relationship with carriers that such engagements deliver. That's hard to show on a spreadsheet, though, so Vestberg and Frykhammar will need to press home the overall value story of Ericsson's broad portfolio play at every opportunity to win the confidence of investors who feel more comfortable with numbers and statistics.

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

(2)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Gabriel Brown
50%
50%
Gabriel Brown,
User Rank: Light Sabre
4/23/2014 | 7:59:29 AM
Re: Mobile broadband still good for a while yet
It's going to be interesting to see how much carriers actually spend on SDN and NFV over the next few years, and how much of that goes to telecom vendors.

I'd argue that the big LTE deployments in China and Europe (well, biggish) will be much more meaningful for Ericsson this year.
Ray@LR
50%
50%
Ray@LR,
User Rank: Blogger
4/23/2014 | 7:49:15 AM
Mobile broadband still good for a while yet
As the mobile broadband infrastructure market leader, and unlikely to be far from the top of the RAN tree any time soon, Ericsson has time to make its multiple (and significant) acquisitions in video, OSS/BSS and IP work. And so far, that mobile networks position has enabled Ericsson to get by, retaining scale and making money.

But as we have seen with Nokia and Blackberry, market leaders are never safe and not guaranteed future success, which is why Ericsosn has diversified and is scrambling to ensure it has at least the perception of being at the vanguard of carrier SDN and NFV developments.

It's going to be very interesting to see if Ericsson has its business mix right. The large vendors need to be able to rely on the majority of its operations performing well if parts are strugling, and so far Ericsson has achieved that balancing act. But it's a tightrope, and one that Nortel has already fallen from.

IN the same that it's interesting now to look back and see which companies have made the cut from 2004 to 2014, it'll be even more interesting to see which names are leading the pack (or have even survived) as comms networking systems vendors in 2024. 
Educational Resources
sponsor supplied content
Educational Resources Archive
Featured Video
From The Founder
Light Reading is spending much of this year digging into the details of how automation technology will impact the comms market, but let's take a moment to also look at how automation is set to overturn the current world order by the middle of the century.
Flash Poll
Upcoming Live Events
November 1, 2017, The Royal Garden Hotel
November 1, 2017, The Montcalm Marble Arch
November 2, 2017, 8 Northumberland Avenue, London, UK
November 2, 2017, 8 Northumberland Avenue – London
November 10, 2017, The Westin Times Square, New York, NY
November 16, 2017, ExCel Centre, London
November 30, 2017, The Westin Times Square
May 14-17, 2018, Austin Convention Center
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Muni Policies Stymie Edge Computing
Carol Wilson, Editor-at-large, 10/17/2017
Is US Lurching Back to Monopoly Status?
Carol Wilson, Editor-at-large, 10/16/2017
'Brutal' Automation & the Looming Workforce Cull
Iain Morris, News Editor, 10/18/2017
Pai's FCC Raises Alarms at Competitive Carriers
Carol Wilson, Editor-at-large, 10/16/2017
Worried About Bandwidth for 4K? Here Comes 8K!
Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation, 10/17/2017
Animals with Phones
Selfie Game Strong Click Here
Latest Comment
Live Digital Audio

Understanding the full experience of women in technology requires starting at the collegiate level (or sooner) and studying the technologies women are involved with, company cultures they're part of and personal experiences of individuals.

During this WiC radio show, we will talk with Nicole Engelbert, the director of Research & Analysis for Ovum Technology and a 23-year telecom industry veteran, about her experiences and perspectives on women in tech. Engelbert covers infrastructure, applications and industries for Ovum, but she is also involved in the research firm's higher education team and has helped colleges and universities globally leverage technology as a strategy for improving recruitment, retention and graduation performance.

She will share her unique insight into the collegiate level, where women pursuing engineering and STEM-related degrees is dwindling. Engelbert will also reveal new, original Ovum research on the topics of artificial intelligence, the Internet of Things, security and augmented reality, as well as discuss what each of those technologies might mean for women in our field. As always, we'll also leave plenty of time to answer all your questions live on the air and chat board.

Like Us on Facebook
Twitter Feed
Partner Perspectives - content from our sponsors
The Mobile Broadband Road Ahead
By Kevin Taylor, for Huawei
All Partner Perspectives