Optical/IP Networks

Ericsson Impresses Again

LM Ericsson (Nasdaq: ERICY) gave the network infrastructure business further fillip this morning, reporting its fourth consecutive quarterly profit and forecasting continued market growth (see Ericsson Increases Q2 Sales).

The Swedish company reported second quarter net sales of SEK 32.6 billion ($4.3 billion), an 18 percent increase year on year from SEK 27.6 billion ($3.7 billion). Orders exceeded sales -- a 17 percent year-on-year increase to SEK 33.1 billion ($4.4 billion) -- boding well for future sales growth.

Ericsson made an SEK 7.8 billion ($1.04 billion) pretax profit in the April to June period, recording a gross operating margin of 47.8 percent.

A report note from analysts at Nomura Holdings Inc. hails the figures as “another excellent set of results that underlines the recovery in Ericsson’s fortunes.”

“The confidence has returned to this industry,” CEO Carl-Henric Svanberg told a press conference in Stockholm. “The bad years are behind us.”

Svanberg cites the vendor’s involvement in the rollout of 3G W-CDMA (Wideband Code Division Multiple Access) networks as a major cause of its cheer. “So far we have been involved in 21 of the 37 W-CDMA networks [in commercial operation] and we will be involved in 46 by the year end.”

Such growth leads Svanberg to predict “slight to moderate growth for the infrastructure business,” reiterating a forecast last quarter (see Ericsson Eats Into CDMA).

Analysts beg to differ, claiming that Svanberg remains over-cautious in his future outlook. “This continues to look too low and we expect 11 percent and 14 percent market growth in 2004 and 2005 respectively,” notes Nomura’s Dr Richard Windsor.

Ericsson also used today’s impressive set of results as an opportunity to talk up its plans for the HSDPA (High-Speed Downlink Packet Access) market.

HSDPA is a packet-based data service evolved from -- and backwards compatible with -- earlier W-CDMA air interface standards, which supposedly offer maximum data transfer rates of 2 Mbit/s.

Used with existing W-CDMA networks, HSDPA-compliant handsets and base stations could increase transfer rates to a maximum of 10 Mbit/s, at least in theory. HSDPA is a standardized feature in the 3rd Generation Partnership Project (3GPP)’s Release 5 specification, introduced in August 2002 (see Release 5 to the 3G Rescue, HSDPA Battles On, and HSDPA to the Rescue?).

“It is an easy upgrade for our equipment,” claims Svanberg. “It is an add-on software with cards... We have already delivered field trial systems and are able to actually set up the service as such. We will see the commercial launch during the second half of 2005.”

Ericsson’s shares mirrored the business uptick, rising 7.3 percent at press time to SEK 23.4 ($3.1) per share.

— Justin Springham, Senior Editor, Europe, Unstrung

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