Ericsson beats forecasts on international growth

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Ericsson beats forecasts on international growth

While US business slows, Swedish vendor sees revenue rise by 17% on back of deals in Europe, China and Latin America

By CAROLINE GABRIEL

Published: 20 October, 2011

READ MORE: Financial | Ericsson | LTE

Despite fears of a slowdown in its largest market, North America, Ericsson beat expectations on the back of growth in China and Latin America.

In its third quarter, the Swedish infrastructure giant saw net income of SKr3.82bn ($573m), up from SKr3.68bn in the year-ago period. This was well ahead of consensus forecasts, which had anticipated a slight drop in earnings to SKr3.66bn. Revenue was up 17% year-on-year, also better than expected at SKr55.5bn.

As expected, there was a decline in spending by two key US customers, AT&T and Verizon, as their investments in 3G capacity and - in Verizon's case - LTE passed their peaks. However, Ericsson, along with Alcatel-Lucent, is supplying AT&T's LTE roll-out as well as Sprint's Network Vision, both of which should gather pace from late this year. However, during the third quarter, other regions were the main contributors as many operators boosted 3G capacity and embarked on 4G deployments.

As well as seeing strength in China and parts of Latin America, Ericsson also increased its share of the network modernization projects taking place in many European countries. These projects typically involve replacing legacy 2G and 3G kit with more flexible systems which are LTE-ready and can support multiple air interfaces. They are the biggest source of infrastructure growth in mature markets, but they carry lower margins than big-bang LTE roll-outs like Verizon's, and Ericsson faces major competition from other flexible RAN platforms such as Huawei's SingleRAN.

"Our performance year-to-date reaffirms our indications of a strengthened global market share," said CEO Hans Vestberg said in his statement, highlighting growth in services as well as mobile broadband infrastructure.

According to researchers at Dell'Oro Group, Ericsson had 40% share of the wireless equipment market in the second quarter, and this sector should be worth about $41.3bn this year, rising to $48bn in 2015 on the back of mobile broadband expansion, by Gartner estimates. However, Ericsson has been shifting the balance of its business towards services, from traditional offerings such as outsourcing to newer ones like hosted web platforms or IPTV. Here, it is somewhat less vulnerable to the price competitive Chinese rivals. During Q3, the Swedish giant won some major managed services deals, including one with Bharti Airtel across many African territories.

Ericsson's two main joint ventures have also announced Q3 results. Sony Ericsson announced earlier this week that it had broken even after a lossmaking Q2, but chipmaker ST-Ericsson saw its losses widen to $211m, from $121m a year earlier. Sales were down 27% year-on-year to $412m as the firm struggles with transition to new processor platforms, although the revenue figure was better than the JV's guidance of about $385m.

"Our financial performance continues to be challenging, but in addition to growing sales of new products, we're on plan to execute the cost saving measures announced in June," said STE's CEO Gilles Delfassy in a statement.