Managed Services

Ericsson's Growth Spurt Continues

Ericsson AB (Nasdaq: ERIC)'s revenues grew by 14 percent year-on-year to 54.8 billion Swedish kronor (US$8.55 billion) in the second quarter, driven by increased demand for mobile broadband network infrastructure in Brazil, China, Germany, South Korea and Russia, while revenues from North America remained at a high level.

The Swedish giant also boosted its profitability, reporting net income of SEK 3.2 billion ($499 million), up 59 percent on the equivalent figure last year.

While the company's sales were in line with expectations, the profits, dampened by the poor performance of Ericsson's handset and chip joint ventures and restructuring costs, disappointed investors. By mid-morning Ericsson's shares on the Swedish exchange were trading down 7.8 percent at SEK 84.75. (See Sony Ericsson Blames Quake for Q2 Slump.)

The main pressure on Ericsson's margins and profits came from a SEK 1.3 billion ($203 million) restructuring charge related to job cuts in Sweden and the net losses at Sony Ericsson Mobile Communications , relatively minor at €50 million ($70.6 million), and ST-Ericsson , which managed to report a second-quarter net loss of $221 million from sales of $385 million.

Table 1: Ericsson Q2 2011 Key Financials
In billions of Swedish kronor Q2 2010 Q2 2011 Y/Y change Q1 2011 Q/Q change
Revenues 48 54.8 14% 53 3%
Gross margin 39% 37.8% Decrease of 1.2 percentage points 38.5% Decrease of 0.7 percentage points
Operating margin excluding joint ventures 11.1% 9.2% Decrease of 1.9 percentage points 11.9% Decrease of 2.7 percentage points
Net income 2 3.2 59% 4.1 -21%
Source: Ericsson

Among Ericsson's core business divisions, Networks performed best with a year-on-year increase in revenues of 31 percent to SEK 33.4 billion ($5.2 billion), while Global Services and Multimedia were down slightly compared with a year ago.

Geographically, the China and North-East Asia, Northern Europe and Central Asia, Latin America and India regions all posted strong year-on-year revenues growth, though the 107 percent increase in India is skewed by the impact of the security-related restriction on sales there during the second quarter of 2010. (See Ericsson CFO: India Bottleneck Easing.)

Table 2: Ericsson Q2 2011 Revenues by Region
Revenues in billions of Swedish kronor Q2 2010 Q2 2011 Change
North America 13.1 12.3 -6%
Latin America 4.2 4.9 17%
Northern Europe and Central Asia 2.7 4.6 70%
Western and Central Europe 4.4 4.3 -2%
Mediterranean 5.6 5.5 -2%
Middle East 3.8 3.5 -7%
Sub-Saharan Africa 3.0 2.2 -25%
India 1.4 2.8 107%
China and North-East Asia 4.6 9.0 96%
South-East Asia and Oceania 3.6 3.0 -17%
Other 1.6 2.5 49%
Total 48.0 54.8 14%
Source: Ericsson

— Ray Le Maistre, International Managing Editor, Light Reading

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