April 27, 2011
A surge in profits, strong sales and a steady gross margin are the key features of Ericsson AB (Nasdaq: ERIC)'s upbeat first-quarter results released early Wednesday.
The Swedish giant’s net income more than tripled to 4.1 billion Swedish kronor (US$674 million) compared with SEK 1.3 billion ($213 million) in the same period last year. The company attributed the hike in profits mainly to strong sales from its network equipment division. (See Ericsson Reports Q1.)
Ericsson’s group revenues in the quarter were up 17 percent to SEK 53 billion ($8.7 billion) compared with a year ago. The biggest contributor to the company’s overall revenue growth in the quarter was the networks division, which posted a year-on-year revenue increase of 35 percent to SEK 33.2 billion ($5.4 bilion).
The sales growth was driven by a strong demand for mobile broadband, according to Ericsson. The countries with particularly strong growth were the U.S., India, Japan, South Korea and Russia. In addition, there was continued momentum for 2G in China.
The strong sales in the networks division as well as efficiency gains helped keep the overall gross margin at 38.5 percent, flat compared with last year.
Ericsson noted that it felt no impact on sales in the first quarter from the recent earthquake and tsunami in Japan. (See Japan Efforts Continue, Impact Assessed, Ericsson Evaluates Earthquake Effect and Japan's Comms Still Hampered.)
However, since its supply chain is in part dependent on Japan, the company estimates that the delivery of certain unspecified products will be delayed in the near term. But by finding alternative components and increasing volumes with second suppliers, Ericsson said it expects to be able to deliver most of these volumes by the end of the third quarter 2011.
Why this matters
The giant Swede certainly started 2011 on a high. The particularly welcome news for the telecoms industry is that the return to growth in the infrastructure market, which Ericsson said started in the fourth quarter of 2010, has continued into this year.
Also, the component parts shortage that affected Ericsson in 2010 appears no longer to be an issue. But the vendor is now turning its attention to mitigation efforts to ease supply chain disruptions and delays due to the Japanese earthquake. (See Parts Problems Hurt Ericsson's Q2.)
Here's all the background to Ericsson’s financial news:
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