Ericsson Suffers Sales Pressure

Ericsson is "currently seeing sales coming under some pressure" in key markets, the company reported early Thursday as it announced third-quarter revenues of 53 billion Swedish kronor (US$8.3 billion), down 3 percent year-on-year and down 4 percent compared with the second quarter.

Two large 4G rollout projects (AT&T and Verizon) are slowing down in North America, having peaked during the first half of the year, while CDMA sales continue to decline in that region. As a result, Ericsson AB's North America revenues dipped 6 percent compared with the second quarter to SEK 14.5 billion ($2.3 billion).

In North-East Asia, a major project is close to completion in Japan, while GSM sales declined in China and spectrum auctions in South Korea led to reduced sales activity. As a result, revenues were down 9 percent compared with the second quarter and down 28 percent from a year ago to SEK 6.1 billion ($958 million).

To make matters worse, the vendor also noted that foreign currency exchange fluctuations are negatively impacting its sales numbers: Without those currency movements, Ericsson says its like-for-like sales would have been 3 percent better than a year ago.

Investors reacted accordingly, sending Ericsson's share price down more than 6 percent to SEK 78.90 on the Stockholm exchange Thursday morning.

But it's not all bad news for the vendor, which has this week been talking about its vision for the telco networks of the future. (See Ericsson's Network Slicing: It's Far Out, Man.)

The vendor's operating margin (excluding joint ventures) was 8.1 percent, up from 4.5 percent in the second quarter and from 6.7 percent a year ago as lower-margin transformation projects begin to yield higher-margin capacity expansion-related sales. In addition, net income for the third quarter of SEK 3 billion ($471 million) was 38 percent better than a year ago and double that of the second quarter.

Revenues in other regions, particularly across Europe and the Middle East, are better than a year ago and the vendor is bullish about its 4G prospects in China, where Ericsson has landed FDD and TDD LTE equipment deals with both China Mobile Ltd. and China Telecom Corp. Ltd., though the company isn't saying what share of the sizeable deals it has landed.

Local reports suggest Ericsson is a minor supplier for the first round of contracts -- about 10 percent at China Mobile and less than 5 percent at China Telecom. (See Alcatel-Lucent Makes 4G Gains in China and Report: Huawei, ZTE Win Big at China Mobile.)

But Ericsson CEO Hans Vestberg regards this as a success, given that Ericsson had no involvement in the 3G rollouts at those operators. "We had no share of 3G but we have gained market share for 4G," he noted, before adding that China Unicom Ltd. is expected to announce its initial 4G deals "in the near term."

But will these 4G deals in China be enough to reverse Ericsson's sales fortunes in North-East Asia? "When one of the biggest regions comes down by 28 percent, it's hard to compensate," he noted during the early Thursday earnings conference call.

He also had to deal with questions about increasing competitive pressure from a revitalized Nokia Solutions and Networks (NSN) and ongoing rivalry from Huawei Technologies Co. Ltd., which has just ousted the Swedish vendor from a deal in Denmark.

"The market conditions are nothing new. Some others are very aggressive… and we will lose some deals. That's what happens when you have a 40 percent market share," he noted.

— Ray Le Maistre, Editor-in-Chief, Light Reading

jhodgesk1s 10/24/2013 | 9:15:46 AM
Re: Services offers the buffer Ray, totally correct. That's the beauty of managed services. It may be lower margin, but it's a long term steady cash flow that helps avoid the dreaded "lumpy" quarterly earnings report.
[email protected] 10/24/2013 | 5:46:28 AM
Services offers the buffer ERicsson, it must be said, seems to have a buffer each time it hits a speed bump - if network sales are slowing then professional services keeps some of the decline in check and vice versa -- it seems to have the optimum business mix at the moment, which allows it to develop the SPIT side of things (OSS BSS SDN etc)
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