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Ericsson Keeps Its Distance From Huawei

Ericsson kept its revenue numbers steady in 2009, leaving it well ahead of Huawei, but the vendor has favorable currency movements to thank for that

January 25, 2010

5 Min Read
Ericsson Keeps Its Distance From Huawei

A mixture of resilience and favorable currency exchange movements helped Ericsson AB (Nasdaq: ERIC) avoid significant shrinkage in reported revenues for 2009, with the Swedish giant generating full year revenues of 206.5 billion Swedish kronor (US$28.6 billion), down just 1 percent compared with 2008.

That still leaves Ericsson well ahead of fast-growing rival Huawei Technologies Co. Ltd. , which recently announced (unaudited) 2009 revenues of $21.5 billion. (See Huawei Claims 2009 Revenues of $21.5B.)

But once the impact of favorable exchange rate movements (particularly between the U.S. dollar and the Swedish kronor) are stripped out, the figures show that even Ericsson fell victim to the depressed economy last year, with its like-for-like full year revenues down 9 percent. (See table below.)

Table 1: Exchange Rates Help Ericsson in 2009

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Full year 2009

Total revenues in Swedish Kronor (billions)

49.6

52.1

46.4

58.3

206.5

Revenues for comparable units (excluding operations sold or acquired)

49.6

52.1

46.4

55.6

203.8

Year-on-year change for comparable units

+16%

+11%

-4%

-16%

0%

Year-on-year change for comparable units once currency fluctuations stripped out

+5%

-3%

-12%

-20%

-9%





During the first half of 2009, Ericsson benefited from favorable exchange rates that gave its reported numbers a lift, while its traditional rivals, Alcatel-Lucent (NYSE: ALU) and Nokia Networks , saw their figures fall. (See Slump Slams Nokia Siemens and Hard Times for Alcatel-Lucent.)

Ericsson's early-year growth, though, wasn't all down to exchange rate movements: Even with those stripped out, the vendor still increased its business during the first quarter of 2009, though by the second quarter the pressure was starting to tell. (See Ericsson Holds Up in Q1 and Services Save Ericsson in Q2.)

CEO Hans Vestberg, just weeks into his new role, noted today that the overall global reduction in spending by carriers hit Ericsson mostly during the second half of last year, with the vendor's Networks division bearing the brunt of the impact (more on that later). (See Pressure Tells on Ericsson's Q3 and Ericsson Names New CEO.)

For the fourth quarter, Ericsson generated revenues of SEK58.3 billion ($8.1 billion), including SEK2.7 billion ($375 million) from five weeks of operations at its new CDMA business, recently acquired from Nortel Networks Ltd. (See Nortel Wireless Winner: It's Ericsson! and Ericsson Kickstarts Nortel Integration Plans.)

Vestberg noted that the CDMA sales nearly all came from infrastructure (so, very little from associated services), and also that the level of sales is not representative of how the business is expected to perform, as the final five weeks of the year included unusually high "seasonal" sales as carriers used up their remaining budgets.

Fourth-quarter and full year profits -- SEK0.7 billion ($97 million), down 82 percent, and SEK4.1 billion ($570 million), down 65 percent -- were hit by restructuring charges and the performance of Ericsson's handset and chip joint ventures, both of which struggled during 2009. (See ST-Ericsson Reports Q4 and Sony Ericsson Reports Q4.)

Vestberg, who said during Monday morning's earnings press conference Webcast that Ericsson maintained or increased its market share in all the sectors in which it is active, is confident that the Swedish giant can outperform the market in 2010, though he didn't elaborate on that prediction.

He did, though, note that Ericsson's cost-cutting program, which was initiated early last year, expanded during 2009, with the prospect of additional cuts having been identified during the third quarter. (See Ericsson Reports Q3 and Ericsson Axes 1,000 More Staff.)

By the time the expanded program is completed (some time in mid-2010), the vendor will have shed 6,500 staff, spent SEK13 billion to SEK14 billion ($1.8-1.95 billion) on the restructuring, and be achieving annual savings of SEK15 billion to SEK16 billion ($2.1-2.2 billion).

Network sales shrink in 2009
While two of Ericsson's divisions -- Professional Services and Multimedia (billing systems, video equipment, IMS systems) -- grew in 2009, the vendor's Networks division saw its sales dip.

Table 2: Ericsson 2009 Revenues by Division

Divisional revenues in SEK billions

2008

2009

Year-on-year change

Networks

142

137.1

-3%

- of which network infrastructure

120.5

114

-5%

- of which network rollout services

21.5

23.1

+7%

Professional Services

49

56.1

+15%

Multimedia*

12.7

13.3

+5%

Total

208.9

206.5

-1%

* Excluding divested Ericsson Mobile Platforms and PBX operations and capital gain from sales of Symbian shares in Q4 2008





For the full year, the division, which includes physical infrastructure and associated network rollout services, reported revenues of SEK137.1 billion ($19 billion), down 3 percent from 2008.

Revenues from network rollout services, though, increased, by 7 percent to SEK23.1 billion ($3.2 billion), while infrastructure sales fell 5.4 percent to SEK114 billion ($15.8 billion).

The chief cause of that dip appears to be a reduction in GSM equipment sales, which hit a high in 2008. Vestberg noted that the economic downturn had hit the Central and Eastern Europe, Middle East, and Africa regions particularly hard, and that had an impact on 2G equipment orders. Overall, the increase in 3G equipment sales, and early Long Term Evolution (LTE) orders, had not been enough to offset the slump in demand for GSM gear.

The CEO noted, however, that activity had increased during the second half of the year in the backhaul infrastructure market, and that this was benefiting its IP division (formerly Redback), as is the initial demand for evolved packet core equipment for LTE rollouts. (See NSN Replaces Huawei in Euro LTE Rollout, Telekom Austria Backhauls With Ericsson, Redback Unveils SM 480, and Ericsson Launches LTE Core.)

Ericsson's share price was trading down 1.5 percent at SEK70.80 on the Stockholm exchange today.

— Ray Le Maistre, International Managing Editor, Light Reading

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