& 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
From The Founder
Cisco's Conrad Clemson, recently promoted to head up the company's Service Provider Apps & Platforms developments, talks to Light Reading's Founder and CEO Steve Saunders about how he's bringing cloud video, mobile and virtualization together to empower network operators.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Huawei Video Resource Center
Huawei MWC 2017 Day One Highlights

3|1|17   |     |   (0) comments


Join us for an exclusive sneak peak at Huawei's amazing show floor at MWC.
LRTV Huawei Video Resource Center
IoT Platform Enables Axiata's Connected Car Realization

3|1|17   |     |   (0) comments


Huawei and Axiata Digital, a wholly owned subsidiary of leading Asian telecommunications group Axiata Group Berhad, signed a Memorandum of Understanding at MWC 2017 to jointly promote IoT services across Asia. The key of Axiata Digital's IoT strategy is to develop an open IoT ecosystem for various industries, so as to enable independent IoT apps to be easily ...
LRTV Huawei Video Resource Center
Simyo: Agile Operation With Huawei BES

3|1|17   |     |   (0) comments


Simyo CEO Jesus Noguera shares the achievements of the Huawei BES project and discusses how they stay competitive in the challenging European market.
LRTV Huawei Video Resource Center
Marching in the Cloud-Based Wireless Network Era

3|1|17   |     |   (0) comments


Huawei exhibited its Cloud-Based Wireless Network in MWC2017. An Jian, president of Wireless Network Marketing and Solutions, unveils key driving forces and customer values for CloudRAN/CloudAIR and evolution strategy towards 5G network.
LRTV Huawei Video Resource Center
Telekom Serbia: Fixed Network Modernization Is on the Way

3|1|17   |     |   (0) comments


Telekom Serbia will achieve full infrastructure renovation based on the all-around cooperation with Huawei in All-IP Fixed Network modernization, paving the way for easy introduction of ultra-broadband HD video and other digital services. This service development will enhance the user experience.
LRTV Huawei Video Resource Center
Elisa: Mobile Video Is Adding a Platform for All Digital Services

3|1|17   |     |   (0) comments


With its new strategy of "Accelerate new services business," Elisa is finding success in mobile video business based on two main factors: new business design and best video experience, and achieving fast business success with the highest DOU in the world. Furthermore, video is adding a platform for all digital services.
LRTV Huawei Video Resource Center
Evolving to All Cloud Network

3|1|17   |     |   (0) comments


All Cloud is a key measure for carriers to achieve digital transformation and upgrade their network infrastructure in terms of networks, services and operations. Digital transformation will create systematic strengths in pooled hardware resources, distributed software architecture and automated operation, which will enable comprehensive resource scheduling and ...
LRTV Huawei Video Resource Center
IoT Platform Enables Carriers to Expand IoT Services & Ecosystem

3|1|17   |     |   (0) comments


The huge potential of the IoT market is attracting enterprises, hoping to seize the opportunity by building up IoT platforms and ecosystem. There are hundreds of IoT platform players in what is a fierce market and Huawei is one of them. Julian Waston, Senior Principal Analyst of IoT from IHS Markit, gives his views on the trends in IoT platforms, and explains how ...
LRTV Interviews
Ericsson's CTO on 4G Innovation

3|1|17   |   05:56   |   (0) comments


At MWC 2017 Ericsson CTO Ulf Ewaldsson talks about the ongoing innovation in hardware and software that can enable Gigabit LTE as operators prepare for 5G.
LRTV Interviews
OrbTV: Tata Goes Global for IoT

3|1|17   |     |   (0) comments


Anthony Bartolo of Tata Communications explains how his company is seeking to meet the need for global connectivity in the IoT space.
LRTV Interviews
OrbTV: Wireless Broadband Alliance Shares Its Smart City Vision

3|1|17   |     |   (0) comments


Shrikant Shenwai, CEO of the Wireless Broadband Alliance, explains how the Wireless Broadband Alliance is helping to shape the connectivity that will underpin tomorrow's smart cities.
LRTV Interviews
OrbTV: Boingo's CTO on the Need for Convergence

3|1|17   |     |   (0) comments


Derek Peterson, CTO of Boingo, talks about the convergence manifesto that was released just prior to MWC 2017.
Upcoming Live Events
March 21-22, 2017, The Curtis Hotel, Denver, CO
March 22, 2017, The Curtis Hotel, Denver, CO
March 22, 2017, The Curtis Hotel, Denver, CO
May 15-17, 2017, Austin Convention Center, Austin, TX
May 15, 2017, Austin Convention Center - Austin, TX
June 6, 2017, The Joule Hotel, Dallas, TX
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
Cloud Rains on HPE Earnings
Mitch Wagner, Editor, Enterprise Cloud, 2/24/2017
Verizon Fixed 5G Tests to Top 3Gbit/s?
Dan Jones, Mobile Editor, 2/23/2017
Cloudflare Bleeds Bad News – & Good
Curtis Franklin, Security Editor, 2/27/2017
Comcast Brings YouTube to the Living Room
Alan Breznick, Cable/Video Practice Leader, Light Reading, 2/27/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
By 2020, Cisco estimates there will be 25 billion devices connected to the Internet. In this MWC 2017 interview with Light Reading Founder and CEO Steve Saunders, Cisco CEO Chuck Robbins provides an update on his company's vision, the exponential growth of the Jasper IoT network and service providers' disillusionment with virtualization technologies.
Light Reading founder and CEO Steve Saunders chats with Sportlogiq CEO Craig Buntin about sports data analysis.
Animals with Phones
Gotta Get the Best Angle Click Here
To maximize the rolls...
Latest Comment
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.