LM Ericsson Telefon AB has reported ‘continued positive business momentum’ for the third quarter, and highlighted significant demand for mobile broadband and HSPA networks, and the strong performance of its mobile unit, Sony Ericsson.
For the third quarter ending September, the Stockholm, Sweden-based company posted net income of SEK 6.2bn ($843m) from SEK 5.3bn ($721m) in the year-ago quarter. Sales rose 12% to SEK 40.8bn ($5.55bn) from SEK 36.2bn ($4.92bn) a year ago, but fell from SEK 44.2bn ($6.01bn) sequentially.
Sales also missed market forecast of sales of SEK 41.8bn ($5.69bn), but Ericsson said the third quarter is traditionally weaker seasonally, and revenues are expected to improve in the fourth quarter.
The company is perhaps best known as the one of the largest makers of equipment for mobile phone networks, where sales rose 5% during the quarter to SEK 28bn ($3.81bn). Fixed networks rose 121% (thanks to Marconi) to SEK 2.5bn ($340m), while professional services rose 31% to SEK 7.9bn ($1.07bn).
According to CEO Carl-Henric Svanberg, there continues to be a strong price pressure trend for mobile phone network equipment, which has translated into mobile operators in developed markets such as western Europe concentrating more on cost of ownership and offering more advanced services for their customer base.
Svanberg said this development has in turn meant that mobile operators are seeking equipment for mobile broadband services. He said Ericsson had signed eight HSPA contracts during the quarter, and is powering a total of 30 commercially launched networks so far. He also quoted research that showed that 3G subscribers on average have 50% higher data usage than 2G users.
We see continued positive business momentum and accelerating focus on broadband, said Svanberg. Traffic in mobile networks is expected to quadruple in the next five years, and there is even stronger growth expected in fixed broadband.
Another positive for Ericsson has been the strong performance of its mobile handset venture, Sony Ericsson. The jointly owned unit with Sony Corp celebrated its fifth anniversary on October 1, and Svanberg pointed to the strong demand for its Cyber-shot K800 and several Walkman branded phones.
The venture shipped 19.8 million phones during the quarter, up 43% from a year ago. Sony Ericsson is now the world’s fourth largest mobile phone maker, and during the third quarter it posted net income of 298m euros ($375m), while sales rose 42% to 2.91bn euros ($3.67bn). Svanberg cautioned however that similar strong results in mobile phones may not be repeated in the future.
In October 2005, Ericsson purchased the telecoms assets of Marconi Corporation Plc for 1.2bn pounds ($2.14bn). The costs associated with this deal has in previous quarters hurt Ericsson’s bottom line, but now the company has shaken off the effects of the deal as Marconi’s operating income run rate has passed breakeven during the quarter.
Ericsson pointed out that Marconi’s product portfolio has now been merged with its own, and it is not possible to track the unit separately anymore. However, Svanberg said 1,600 Marconi staff have already been laid off, with associated restructuring costing of SEK 2.2bn ($299m).
During the quarter Ericsson completed the SEK 3.8bn ($517m) sale of its defense business, Ericsson Microwave Systems AB, and its 40% holding in Saab Ericsson Space, to Saab AB. It also completed the SEK 300m ($40m) cash purchase of Netwise AB, which offers presence and availability management tools to increase the effectiveness of a company’s switchboard.
Looking forward, Svanberg said he expects traffic growth for mobile networks across the world to continue thanks to new services and new subscribers. He expects GSM/WCDMA to show moderate growth compared to 2005, and said 2007 will also show moderate growth compared to 2006. Professional services is also expected to show good growth, both in 2006 and in 2007.
Ericsson also revealed that from January 1, 2007, the company will be split into three business units: Networks, Global Services, and Multimedia. Its next scheduled report is on February 2, 2007.