Ericsson Q1 profits slide by 30 per cent

Swedish infrastructure vendor Ericsson has reported a 30 per cent drop in profits for the first quarter of this year, netting SEK1.3bn ($180m) for the three months to end March, compared to SEK1.8bn for the same period in 2009. CEO Hans Vestberg said a slowdown in infrastructure sales was partly to blame, and the firm was also impacted by ongoing restructuring costs.

The shift in Ericsson’s business to a more service-oriented offering was reflected in a three percent increase in Global Service revenues to SEK13.3bn, with managed services growing by 17 per cent to SEK4.9bn. Network sales, meanwhile, declined by 14 per cent to SEK24.7bn.

“The market conditions we saw in the second half of 2009 prevailed also in this quarter with mixed operator investment behavior across regions and markets,” said Vestberg. “Operators in a number of developing markets were still cautious with their investments which impacted Networks’ sales.”

Ericsson recorded a SEK2.2bn restructuring charge for the quarter, compared to SEK700m for the same period in 2009, which excluded costs related to Ericsson’s joint ventures, handset player Sony Ericsson and silicon vendor ST Ericsson. Vestberg said that the work to regain profitability in these ventures, which have struggled recently, is on track and he made reference to improvements in Sony Ericsson’s results year on year.

Speaking to earlier this year, Ericsson CFO Jan Frykhammar stressed the importance of including restructuring costs in financial reporting and spoke of drawing a line underneath the downsizing operation that has seen Ericsson slash large numbers of jobs. It cut 5,000 heads in 2009 and is looking to shave a further 1,500 during 2010.

“I think we will always look for efficiencies and synergies but we feel that we want to put an end to that programme from an external communications perspective and start to look at the P&L in the normal way again; which means not excluding restructuring costs and things like that,” he said.

Reactive cost management will play a role as well. “There are always adjustments up and down in the size of the organisation because of business volume, if we lose a contract, although we always hate to lose. Last year there were a couple of examples of that and you have to readjust,” he says. “Or individual markets may have problems. Spain, for example, has had a hard couple of years because the country is in financial trouble. So we’ve adjusted the size of our organisation there to reflect that. But an adjustment like that is not included in the efficiency programme that we communicate to the market.”

You can read the full interview with Fryhammar here.

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