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Ericsson Soars on Strong Q3

Ericsson AB (Nasdaq: ERIC) rushed out the news today that it had a stronger than expected third quarter and was not affected by the global financial crisis, which sent its stock soaring more than 20 percent this morning.

The Swedish vendor was scheduled to report its third-quarter results on Thursday, but released the news four days early because the numbers were better than expected. [Ed. note: Last year, remember, Ericsson rushed out third-quarter results, but that was because they were so bad.] (See Profit Warning Slams Ericsson , Ericsson CFO Steps Down, and Ericsson Predicts Weak Q4.)

"Our business in the quarter has not been impacted by the financial turmoil," said Ericsson president and CEO Carl-Henric Svanberg n a statement. "Our customers are generally financially strong. In addition, networks are loaded and traffic shows strong increase."

Ericsson's revenues were up 13 percent in the third quarter to SEK 49.2 billion (US$6.6 billion), compared with SEK 43.5 billion ($5.8 billion) in the same quarter last year. Third-quarter revenues were up just 1 percent, though, from the previous quarter's revenues of SEK 48.5 billion ($6.5 billion).

Ericsson's net income plunged 28 percent to SEK 2.8 billion ($378 million) -- which includes restructuring charges -- compared with SEK 4 billion ($540 million) in the third quarter last year. But this drop was not as bad as analysts were expecting.

Don’t get too excited
Despite the strong quarter and the revelation that Ericsson is not affected by the global financial turmoil, Svanberg urged caution for those making forecasts for the fourth quarter and next year. Ericsson itself does not issue a guidance, but the company said it is planning for a "flattish" market in global mobile infrastructure and "good growth" in professional services next year. (See Table 1.)

"In the present financial turmoil, it is however hard to predict how operators will act and to what extent consumer telecom spending will be affected," said Svanberg. "We have a positive longer-term view for our industry, however, as we look into 2009, we continue to plan for a flattish market, and we have measures in place also for tougher conditions."

Ericsson continues its cost cutting program to save SEK 4 billion annually, which it announced in February this year. The company says the cost reduction should have full effect from 2009. (See Ericsson Cuts Jobs as H2 Bites, Ericsson Sinks on Q2 Profit Dip.)

Business growing in the Americas
Svanberg said there was strong sales development everywhere except Western Europe, where revenues were down 6 percent compared with the same quarter last year. (See Table 2.)

While revenues in Western Europe continue to shrink, Ericsson reported the strongest sales growth in Latin America and North America, where revenues grew 43 percent and 44 percent, respectively, year-on-year.

The boost to Latin American sales comes mainly from mobile broadband build-outs in Brazil and professional services sales in the region.

In North America, the revenue growth driver is also mainly mobile broadband. Ericsson also noted that Redback Networks Inc. sales were down in the U.S., but were up overall thanks to stronger international sales.

— Michelle Donegan, European Editor, Unstrung

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