Optical/IP Networks

Ericsson Adds to Vendor Cheer

Vendor growth in the wireless infrastructure market continues on its upward trajectory, with Ericsson AB (Nasdaq: ERICY) today becoming the latest incumbent equipment supplier to beat analyst expectations with its quarterly financials (see Ericsson Ups Sales).

The Swedish player recorded first-quarter sales of 31.5 billion Swedish kroner (US$4.5 billion), up 12 percent from SEK 28.1 billion ($4 billion) in the same quarter last year.

Ericsson made a SEK 4.6 billion ($656 million) net profit in the January-to-March period this year, compared to SEK 2.6 billion ($371 million) in the previous year.

“Net income [was] well ahead of our SEK 4.1 billion [$584 million] forecast and the market’s estimate of SEK 4 billion [$570 million],” writes Nomura Holdings Inc.’s Dr Richard Windsor in a research note. “”Operating profits were SEK 6.6 billion [$941 million], far ahead of our SEK 5.1 billion [$727 million] and market estimates of SEK 5.7 billion [$813 million]. This was mostly due to gross margins coming in 3 percent higher than expected [48.5 percent].”

First-quarter earnings per share came in at SEK 0.29 ($0.04), compared to an average forecast of SEK 0.25 ($0.036) and up from SEK 0.16 ($0.02) twelve months earlier.

Today’s results follow similarly impressive wireless network growth at rivals Lucent Technologies Inc. (NYSE: LU), Motorola Inc. (NYSE: MOT), and Nokia Corp. (NYSE: NOK). (See Lucent Leans on Wireless, Moto Shows Q1 Muscle , and Networks Outperform at Nokia.)

“It’s a good start to the year,” remarked Ericsson CEO Carl-Henric Svanberg at a Stockholm press conference. Svanberg was keen to tout the company’s 27 signed IMS deals to date, as well as a $2 billion managed services contract at Hutchison 3G Italy (see Ericsson Scores $2B Services Deal and Ericsson Manages H3G Italy ). “It’s by far the largest contract Ericsson has ever signed.”

Looking ahead, the company is sticking to its previous forecast of “slight” market growth (see Ericsson Takes a Knock). “The market outlook is exactly the same as last time as we see no reason to change it,” commented Svanberg.

Nomura’s Windsor is more optimistic. “Guidance continues to look too low, and we think that financial performance in 2005 will comfortably exceed the cautious guidance.”

Ericsson shares had risen 3.3 percent to SEK 21.7 ($3.10) at press time, reflecting the business upturn.

— Justin Springham, Senior Editor, Europe, Unstrung

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