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Ericsson Profits Plunge 71% Amid Poor Sales

The recession and Chinese competition took their toll on Ericsson for the quarter: The No. 1 global wireless infrastructure vendor reported a big 71 percent third-quarter profit loss, surprising analysts.

Shares skidded for the company on the news that net income fell to $118 million, falling 6.2 percent on the Stockholm stock exchange in Sweden.

Overall sales fell 6 percent to $6.8 billion from a year earlier. Equipment sales fell 8 percent, while services sales gained 9 percent. Analysts were expecting an overall sales increase. “Sales fell well short of our estimates and consensus,” said Jason Willey, a London-based analyst at Standard & Poor’s. “We are most surprised by the magnitude of the shortfall in professional services.”

Operating profit was a good surprise however, slipping just 3 percent from a year earlier to $803 million, thanks to a sweeping restructuring that cut costs enough to offset the sales declines.

It’s a tough time for vendors: Carriers are still postponing projects and in some markets credit is still tight, CEO Carl-Henric Svanberg noted. Meanwhile, Chinese manufacturers like Huawei are in the market with lower pricing on gear, and are as a result stealing share from the incumbent vendors in a tough economy. And it doesn’t help that prices overall are dropping as equipment costs decline with volume, which goes directly to reduced revenue results.

Ericsson also suffered from losses in its joint ventures. Consumer electronics JV Sony Ericsson reported a third-quarter net loss of $245 million, with sales falling 42 percent. Phone chip JV ST-Ericsson reported a third-quarter net loss of $201 million, which is better than previous quarters.

Despite the disappointing results, the gear-maker hung onto its market lead, with a 32 percent share, ahead of Nokia Siemens Networks and Huawei.

Svanberg expects things to turn around but offered no specific guidance. “There were obviously less projects on the drawing boards six to 12 months ago, and I think all operators understand there are better times ahead,” he said.

Going forward, Ericsson could benefit from the wireless assets and LTE patent licenses it purchased from Nortel Networks last summer for $1.13 billion. The purchase gave Ericsson an immediate CDMA base in North America, a market it’s largely found difficult to crack previously.

Also noteworthy is the fact that Ericsson is a core vendor for Verizon Wireless’ impending 4G LTE network, scheduled to start commercializing next year.


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