For once, NSN upstages Ericsson with unexpected profit
Claims new Chinese deals as Swedish leader suffers sharp earnings drop
Published: 23 April, 2010
READ MORE: Financial | China | Ericsson | Nokia Siemens Networks | LTE
There was some role reversal going on in the wireless infrastructure market this week. Nokia Siemens (NSN) reported a surprise profit for its first quarter, despite a 9% fall in sales, while the usually Teflon-like Ericsson disappointed the markets with a 27% year-on-year fall in earnings.
The NSN venture has struggled to make a profit since it was formed three years ago and still faces huge challenges in competing with Ericsson and Huawei in traditional hardware businesses - increasingly a game of scale and price wars - and in shifting to more differentiated and high value services offerings. However, some progress has been made, and NSN topped its rare upstaging of Ericsson by announcing new Chinese contracts worth €750m, just days after the Swedish leader had revealed its own new deals in the country.
Sales at NSN were €2.72bn ($3.6bn), down 9% year-on-year and down 25% sequentially. Services contributed €1.3bn or almost 48% of the total. It reported an underlying operating profit of €15m, compared to a loss of €122mm a year before. Analysts had expected a loss of €62m. Including one-off items, the unit had an operating loss of $301.4m, narrower than the $481m operating loss of a year earlier.
"Nokia Siemens Networks' profitability benefited from a positive sales mix in Q1," according to a statement from Olli-Pekka Kallasvuo, CEO of Nokia, which reports its JV's results. "I am also pleased to see encouraging results from the company's focus on helping operators meet the challenge of the rapid growth in data and signalling traffic from smartphones."
The venture reiterated forecasts that the infrastructure market would be flat this year compared to 2009, and that it would outperform that market and achieve some growth. It also looked forward to an operating margin of between break-even and 2%.
Meanwhile, NSN announced new frame agreements worth €750m with China Mobile and China Unicom, extensions to existing contracts for GSM and 3G. Last week, Ericsson announced new deals with China Mobile and a collaboration with local supplier Datang on TD-SCDMA and TD-LTE, the key technologies for the largest cellco. NSN needs to respond to that, seeking a role in the emerging TD-LTE market to boost its overall 4G performance - in the early days of LTE trials, it has been overshadowed by Ericsson and Huawei, but has recently announced a range of tests and contracts.
Over at Ericsson, squeezed spending in emerging markets was the main factor behind the unexpectedly sharp profits drop. Net income fell to SKr1.26bn ($174m) , while analysts had predicted profit of Skr2.02bn. Revenue dropped 9% to SKr45.1bn, also missing analyst targets of Skr48.1bn.
Profit in the key networks business fell by about 50% and sales declined in eight out of 10 sales regions, most dramatically in Africa and India. North American revenues doubled, however, as Ericsson integrated Nortel's CDMA, LTE and GSM businesses - the region accounted for more than 20% of revenues.
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