Ericsson enjoyed a 34% year-on-year rise in net profits in the third quarter, but reported a shock fall in sales because of unfavourable currency trends as well as pressures in some important markets, notably Japan.
Revenues for the quarter were down 3% to SEK53bn ‘ with constant foreign exchange rates, the figure would have risen by 3%. However, more concerning was talk of a slowdown in certain major projects, partly because some of the very large first-wave LTE deployments are close to completion, notably the Verizon and AT&T roll-outs in the US and a ‘large project’ in Japan. However, the two US giants are moving towards phase two, when they will focus on capacity in selected areas rather than coverage, so Ericsson will hope for further business here in 2014.
The wireless infrastructure leader’s operating profit improved to SEK4.2bn from SEK3.1bn a year earlier, as it continues to see a shift away from low margin network modernization and coverage projects, which have hit its profits during the past couple of years, particularly in its recession-hit European homeland. Now cellcos are moving towards more profitable capacity and LTE projects, a trend that was noted in Q2 and in the most recent period, helped to boost net profit to SEK3bn from SEK2.2bn.
The company highlighted the newly launched Radio Dot indoor solution, new generation AIR macro layer products and the Microsoft Mediaroom acquisition as important growth drivers in the coming months.
Ericsson’s largest business, Networks, accounted for just under half of its Q313 sales at SEK26.7bn, down 1% on the previous year and 5% on the second quarter of 2013. Global Services saw sales fall by 1% year-on-year to SEK24bn while the smallest unit, Support Solutions, plummeted by 29% to SEK2.4bn. Gross margin was 32% while in Networks, operating margin was 10%, twice that of Q312.
CEO Hans Vestberg described regional variations for networks in his statement, saying: “We are currently seeing sales coming under some pressure. In addition to FX, the major drivers for this development are the two large mobile broadband coverage projects, which peaked in North America in the first half of 2013. We also saw impact from reduced activity in Japan where we are getting closer to completion of a major project.’
He added: ‘The 4G/LTE tenders in China continue and so far two of the major operators have made their choices. Despite having insignificant market share for 3G, Ericsson has been named technology partner for both these operators and we will now build on this initial footprint.
The pace is picking up in the European market with continued W-CDMA/LTE investments and a major investment announcement by one of the large operators. Ericsson now sees growth in several European markets and margins are also improving as the network modernization projects gradually come to an end and we engage more in new capacity and LTE business.’