Optical, Access Help Marconi
The vendor's numbers were roughly in line with analysts' expectations, with second quarter (fiscal year 2006) revenues of £312 million ($535 million), up £27 million ($46.3 million), or 9 percent, sequentially and 2 percent up compared with a year earlier. Marconi made a small profit of £5 million ($9 million), an improvement on the slight loss it made a year earlier and the £36 million ($62 million) loss recorded in the previous quarter.
In line with other vendors, Marconi recorded an uptick in optical equipment sales (sequentially and year on year) as carriers boost the capacity of their networks to cope with increasing and anticipated data and video traffic, and reported the same upward trend in its access equipment business.
Optical sales in the second quarter were £84 million ($144 million), up from £68 million ($117 million) in the first quarter and £76 million ($130 million) a year earlier. Access revenues were £84 million ($144 million), up from £73 million ($125 million) in the first quarter and £76 million ($130 million) a year earlier.
This led analysts at Dresdner Kleinwort Wasserstein to note that the assets being acquired by Ericsson are developing nicely, noting in particular the healthy growth in optical and access. The DKW team has maintained its "Buy" rating for Ericsson.
Despite the better performance, operating margins were razor thin, though better than the narrow operating losses recorded in the first quarter and the year previously, and it's these figures that concern Richard Windsor at Nomura International.
Windsor, who has a "Sell" rating on Ericsson's stock, reckons the Swedish firm has paid over the odds for Marconi, and that Ericsson will struggle to pull Marconi's operating margins up to its 20 percent target.
Ericsson, which is shelling out £1.2 billion ($2.1 billion) for the U.K. company's non-services business units, has traded its way out of the downturn and is now making healthy quarterly profits, which analysts such as Windsor think might take a hit once the Marconi business is integrated. (See Ericsson Reports Q3.)
Ericsson's management, though, believes that headcount reductions and more cost-effective sourcing and manufacturing arrangements will lead to healthy profits from the units it's acquiring. (See Ericsson/Marconi: The Fallout.)
Marconi's share price ended the day down 1 percent to 381 pence on the London Stock Exchange.
— Ray Le Maistre, International News Editor, Light Reading