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Ericsson Takes a Knock

Ericsson AB's (Nasdaq: ERICY) share price has taken a hit today despite the company reporting its fifth straight quarterly profit on the back of a 9 percent increase in net sales (see Ericsson Reports Q4 Profit).

The Swedish network vendor recorded fourth-quarter sales of 39.4 billion Swedish kroner (US$5.55 billion), up from SEK 36.2 billion ($5.1 billion) in the same quarter last year.

The company made a SEK 6 billion net profit ($845 million) in the October-to-December period last year, compared to only SEK 142 million ($1.9 million) in the previous year. Fourth-quarter earnings came in at SEK 0.38 ($0.05) per share, up from a dismal SEK 0.01 ($0.001) twelve months earlier.

These strong financials were tempered, however, by a fall in gross margin and a warning that the company has benefited from “pent-up demand” for network expenditure amongst carriers in 2004.

The vendor reported gross margin of 45.6 percent, below analyst expectations of 47.3 percent and down from 47.1 percent in the third quarter. “Gross margin was slightly down sequentially, mainly due to a large number of new network rollouts in the quarter,” CEO Carl-Henric Svanberg told a press conference in Stockholm.

As a result, Ericsson’s shares fell 7.2 percent at time of press to SEK 20.7 ($2.93) per share. Looking ahead, the company is sticking to its cautious outlook on future market growth, with Svanberg forecasting “slight growth in U.S. dollar terms in 2005.” (See Ericsson Warns on Growth.) Financial analysts generally define “slight” growth as between 2 and 5 percent.

Such an estimate mirrors rival Nokia Corp.'s (NYSE: NOK) recent similar forecast (see Networks Shine at Nokia).

— Justin Springham, Senior Editor, Europe, Unstrung

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