Ericsson takes hit in 4Q but full year bounces back

Infrastructure giant Ericsson took a big hit in the fourth quarter of 2011, as handset venture Sony Ericsson weighed on profits and sales in the network division remained sluggish. But the company showed good recovery for the full year, notching up a 12 per cent increase in revenues year on year to SEK226.9bn (€25.6bn), while profits rose 12 per cent to SEK12.6bn.

Group sales in the quarter were flat year-over-year and grew 15 per cent sequentially, a weaker than normal performance in the fourth quarter. Speaking with, Ericsson CFO Jan Frykhammar, said the main factor here was a slowdown network spending in North America and Russia. The company has also been building its strength in Europe, taking on lower margin contracts with a view to more repeat business in the future – a strategy that is working but has impacted the gross margin as a result.

2011 saw more build out of coverage for HSPA and LTE networks, with North America being more LTE centric and the rest of the world tilted more to HSPA.

But there were positive developments in the services business, notching up 70 new managed services contracts during 2011. Frykhammar also noted strong growth in consultancy and systems integration which reflects the importance of the Telcordia acquisition. The deal closed in early January and now the integration work will start, with Telcoridia becoming an integrated entity over time. The OSS firm is already a big name among Ericsson customers, especially in the US, and gives Ericsson expanded scope in terms of its customer base, with an aim to grow the business globally.

The fourth quarter was challenging for Ericsson’s joint ventures and both reported significant losses. The handset unit should not be a problem for long as Ericsson recently sold its 50 per cent share to Sony. ST-Ericsson is still struggling though and announced a new CEO in December who is tasked with securing that products get out in time. The company needs to capture revenue from smartphone growth, but Frykhammar said that at the moment its main focus in on the feature phone segment, which is in decline. ST-Ericsson also relies on a few big players, like Nokia, which is struggling in the sector at the moment.

A few weeks ago, Ericsson took steps to place more emphasis on protecting its intellectual property, by reorganising its Licensing and Patent Development department with the aim of creating a larger revenue stream from its IPR. In addition, the company’s chief intellectual property officer, Kasim Alfalahi, will now report directly to president and CEO Hans Vestberg.

“Over time, patents and licensing will become a stronger revenue stream for us. We have the strongest patent portfolio in the industry and it’s an important business opportunity for us,” Frykhammar said.

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