Faster growth signals a turnaround for Ericsson

By InvestSMART · 2 Feb 2013

By InvestSMART ·
2 Feb 2013

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ERICSSON, the world's biggest maker of mobile telephone network equipment, said sales and profit grew faster than expected in the fourth quarter as phone operators in the US and Canada spent heavily to upgrade wireless networks.

The company booked a net loss in the quarter as it wrote down the value of ST-Ericsson, an unprofitable smartphone component venture with the French chip maker STMicroelectronics.

But investors apparently looked past that to focus on the underlying growth. Shares of Ericsson, based in Stockholm, rose almost 10 per cent after the earnings report, which showed that demand from North America had helped lift Ericsson's global sales of network equipment, the company's main business, by 6 per cent from a year earlier.

Ericsson's sales of equipment, software and services in the three months to December 31 rose 5 per cent to 66.9 billion Swedish krona ($10.2 billion).

"This suggests the declining sales of network equipment we have seen for some time has finally begun to turn around," an analyst at Swedbank in Stockholm Hakan Wranne, said.

In North America, Ericsson said sales of mobile broadband and other network gear surged 86 per cent, to 9.4 billion krona, in the quarter. Sales of equipment rose 10 per cent in western Europe and 38 per cent in India. The increase followed four quarters of declining global network sales.

"We continue to believe the long-term fundamentals of this industry are attractive," chief executive of Ericsson Hans Vestberg, said. "It is clear that society will be using mobile broadband and the cloud much more than they are now."

Ericsson said it took a charge of 8.6 billion krona against earnings for ST-Ericsson, which is based in Geneva and has generated about $2.7 billion in losses since February 2009. ST-Ericsson employs 5090 workers and makes processor modules and modems for some Samsung, Motorola and Sony smartphones.

Mr Vestberg did not comment on the future of ST-Ericsson. Last month, STMicroelectronics announced plans to leave the venture and Ericsson, which has written off the entire value of its investment, said it had no intention to buy its partner's stake.

The New York Times

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Frequently Asked Questions about this Article…

What did Ericsson report in its latest quarterly results and why did investors react positively?

Ericsson reported faster-than-expected sales and profit growth in the fourth quarter, with equipment, software and services revenue up 5% to 66.9 billion Swedish kronor (about $10.2 billion). Investors focused on the stronger underlying demand for network equipment—especially from North America—and pushed the stock up almost 10% after the report.

Why did Ericsson still record a net loss in the quarter despite stronger sales?

Ericsson posted a net loss because it took a large write-down related to ST-Ericsson, its unprofitable smartphone component joint venture with STMicroelectronics. The company booked an 8.6 billion kronor charge against earnings tied to that venture.

How much did North American demand contribute to Ericsson's growth?

Sales of mobile broadband and other network gear in North America surged 86% in the quarter to 9.4 billion kronor, which was a major driver of Ericsson's overall improvement and helped lift global network equipment sales by about 6% year‑on‑year.

Which regions outside North America showed notable sales gains for Ericsson?

Ericsson reported equipment sales rose 10% in western Europe and 38% in India during the quarter, following four quarters of declining global network sales.

What did Ericsson say about the long-term outlook for the mobile network industry?

CEO Hans Vestberg said the long-term fundamentals remain attractive and highlighted that society will use mobile broadband and the cloud far more in the future—indicating management sees continued demand for network upgrades and services.

What is ST-Ericsson and how did it affect Ericsson's results?

ST-Ericsson is a Geneva‑based joint venture that makes processor modules and modems for some Samsung, Motorola and Sony smartphones. Ericsson wrote off its investment and took an 8.6 billion kronor charge after the venture incurred about $2.7 billion in losses since February 2009.

Is Ericsson planning to buy STMicroelectronics' stake in ST-Ericsson?

According to the article, STMicroelectronics announced plans to leave the venture and Ericsson, having written off the entire value of its investment, said it had no intention to buy STMicroelectronics' stake.

What should everyday investors take away from Ericsson's report?

Everyday investors can note that Ericsson showed a potential turnaround in its core network-equipment business—driven by strong North American and select regional demand—even though the company reported a one-off loss from writing down ST-Ericsson. The quarter highlights the difference between underlying operational recovery and isolated accounting charges tied to joint ventures.