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AT&T/T-Mobile Deal Dampens Ericsson Q4 SalesAT&T/T-Mobile Deal Dampens Ericsson Q4 Sales

Ericsson points to the failed merger as the cause of a sales slowdown in the US and, globally, finds that carriers are spending more cautiously

Michelle Donegan

January 25, 2012

3 Min Read
AT&T/T-Mobile Deal Dampens Ericsson Q4 Sales

If there was any doubt left about how AT&T Inc. (NYSE: T) and T-Mobile US Inc. 's failed merger attempt affected network equipment supplier in 2011, Ericsson AB (Nasdaq: ERIC)'s fourth-quarter results offers a stark answer. (See Ericsson Suffers Margin Crunch.)

Ericsson's networks business recorded a 9 percent drop in revenue, year-on-year, to 33.3 billion Swedish kronor (US$4.8 billion). But in North America, network sales declined a whopping 40 percent versus the year-ago period.

Overall, including Ericsson's global services and multimedia businesses, revenue from North America in the fourth quarter fell 20 percent.

In the networks business, though, the most important factor for the decreased revenue in North America was consolidation in the U.S. "Meaning, the planned consolidation between AT&T and T-Mobile," Ericsson CEO Hans Vestberg said on the the vendor's fourth-quarter earnings call. "That made the second half [of the year] a very low investment for those two companies."

But the merger wasn't the only factor affecting infrastructure sales in North America. Vestberg explained that there was a slowdown in operator spending in the second half of the year because operators there were coming down from a period of very high investment earlier in the year. In addition, Ericsson has started to see the expected decline in its CDMA business as operators shift investment to Long Term Evolution (LTE).

"There's a transition from CDMA to LTE that is going very rapidly, and our CDMA business is declining," said Vestberg.

This would suggest that even though operators are moving fast to LTE in the U.S., their investment in the next-generation technology was not enough to compensate for a decline in CDMA sales at Ericsson in the fourth quarter.

Uncertainty is back
Beyond North America, and the impact of the AT&T/T-Mobile merger, Ericsson said there was more operator caution in the fourth quarter, due to the macro economic situation as well as political unrest in some countries. And that uncertainty resulted in operators delaying spending decisions in the fourth quarter.

We've been here before when the impact of the global financial crisis first hit a couple of years ago. (See Carrier Caution Cuffs Ericsson in Q1.)

But Vestberg said there was less cautiousness now than there was at the beginning of the financial crisis.

"What we've seen in the fourth quarter basically is that budget processes take longer and decisions take longer, but the business activity is there. That's for sure," he said. "Last time, we saw impacts immediately on capital constraints for operators who couldn't get it in Asia and Africa. ...

"The impact [now] was that at year end, normally we have a lot of sales for investments from customers. We didn't see much of that," he added. "There's a cautiousness and I don't think that's strange given what we see and read on the news."

But Vestberg was not able to say how that carrier uncertainty might affect Ericsson sales in 2012.

"We need to understand the cautiousness," he said. "Business activity is still high ... what we can't say is how the cautiousness will impact sales."

It might be a good time for other vendors to buckle up; 2012 looks like it could be a bumpy ride.

— Michelle Donegan, European Editor, Light Reading Mobile

About the Author(s)

Michelle Donegan

Michelle Donegan is an independent technology writer who has covered the communications industry for the last 20 years on both sides of the Pond. Her career began in Chicago in 1993 when Telephony magazine launched an international title, aptly named Global Telephony. Since then, she has upped sticks (as they say) to the UK and has written for various publications including Communications Week International, Total Telecom and, most recently, Light Reading.  

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