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Wireless Pause Pesters Ericsson, Lucent

Wireless equipment sales are reaching a pause for Ericsson AB (Nasdaq: ERIC), but it's no cause for long-term concern, analysts say.

Ericsson is troubled by GSM and UMTS spending, which in North America "may be below plan due to some near-term digestion of capacity," analyst Mark Sue of RBC Capital Markets writes in a report issued this morning.

Ericsson customer Cingular Wireless is largely to blame there, as its spending looks to land "closer to the low end" of its projections for the year, Sue writes.

Ericsson wouldn't be the only company seeing wireless sales stall. During the June quarter, wireless revenues at Lucent Technologies Inc. (NYSE: LU) dropped 17 percent from the previous quarter, to $827 million, due to delays by Sprint Corp. (NYSE: S) and Verizon Wireless . Lucent's case is driven by slower CDMA sales to those customers. (See Lucent Plays Waiting Game in Q2.)

For Ericsson, the problem appears temporary. "We believe most of the delay is timing related and the pipeline for the back half remains healthy," Sue writes. Moreover, Ericsson noted recently that 80 percent of its growth is coming not from places like North America, but from emerging markets. (See Emerging Markets Boost Ericsson.)

Sales to Asia have eased after a recent surge of spending from China, Sue writes. (See Ericsson Lands $290M.) But this is part of the "back half" pipeline; Sue thinks a China Mobile Communications Corp. expansion of GSM coverage could give Ericsson a boost in the fourth quarter.

Other opportunities include supplying Brazilian carrier Vivo Participacoes SA with gear to convert its CDMA network to GSM and WDCMA, Sue notes. He's previously pegged Ericsson and Huawei Technologies Co. Ltd. as the most likely candidates for that job.

Sue lowered estimates for Ericsson's third quarter to 41 billion Swedish Kronor (US$5.7 billion) from SEK43 billion ($6 billion). That would be down about 7 percent from the SEK44.2 billion ($6.2 billion) Ericsson reported in its second quarter, which ended June 30.

Ericsson stock was up $0.63 (2%) to $32.90 in midday trading on Thursday.

— Craig Matsumoto, Senior Editor, Light Reading

jasanz 12/5/2012 | 3:44:11 AM
re: Wireless Pause Pesters Ericsson, Lucent Are Lucent and Ericsson the only two vendors affected by the wireless pause?

What about Nortel and Huaweia? How would the interest that Alcatel has in Nortel's UMTS business would affect Alcatel-Lucent combined?
jepovic 12/5/2012 | 3:44:07 AM
re: Wireless Pause Pesters Ericsson, Lucent According to an analysis from Dresdner Kleinwort, from yesterday, there is something of an uprise among some midsized Alcatel shareholders.

Apparently, LU has more pension liabilities than anticipated. Plus, the lucrative military part might have to be sold off to satisfy the US gov. The recent CDMA development is not helping out either, 'suppose...

I'm surprised LR hasn't followed up on this.
jcrawshaw 12/5/2012 | 3:44:04 AM
re: Wireless Pause Pesters Ericsson, Lucent Nortel's CDMA sales fell 5% YoY in 2Q06 (cf Lucent's 30% YoY decline). Their GSM/UMTS sales grew 28% YoY (cf Ericsson 7%, Nokia 9%).
Huawei doesn't report interim results.

Alcatel's merger with Lucent will give them a #2 position in mobile infrastructure vs #5 and #7 respectively today. However, this will be made up of a #1 position in CDMA thanks to Lucent and a combined #4 position in GSM/UMTS. By acquiring Nortel's GSM/UMTS business Alcatel/Lucent would be #2 in GSM/UMTS behind Ericsson but ahead of Nokia and Siemens (until they merge).
There is some customer overlap such as Orange, France but otherwise the business appears to be a good fit. Financing the acquisition could however put a strain on Alcatel's balance sheet. I don't think Nortel's UMTS business without the profitable GSM part would be an interesting business for anyone to buy.
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