Ericsson doubles Q2 profit but share price drops

Swedish vendor Ericsson, the leading supplier of infrastructure and services to the mobile operator community, has reported second quarter profit of SEK2bn (US$274m), up from SEK800m for the same period in 2009. But despite the surge in income, the company’s share price took a five per cent tumble in response to the announcement as the numbers fell some way short of analyst expectations.

Group sales were down eight per cent at SEK48bn from SEK52.1bn, with network sales down 12 per cent at SEK25.5bn. Revenues in the global services unit were flat at SEK20bn, although the profession services unit, which includes the firm’s managed services activities, saw sales increase five per cent to SEK14.8bn

“Operators showed a continued good demand for mobile broadband driven by smartphone and laptop usage,” said Ericsson CEO Hans Vestberg. “Sales were, however, impacted by continued industry component shortages and supply chain bottlenecks. We estimate that this had a negative impact on our sales in the quarter by SEK 3-4 b.”

Vestberg said that the “mixed operator investment behaviour” that the firm had witnessed in the second half of 2009 has continued into the first half of 2010. All regions except North America turned in lower sales year on year, he said, with operators remaining cautious.

Ericsson’s cost reduction programme has now been completed, the firm said, with the targeted reduction in operating expenditure having been achieved. But operating expenses for the quarter were actually up slightly at SEK13.9bn, impacted by the integration of the Nortel CDMA and GSM assets that Ericsson acquired at the end of last year, increased R&D activities and growth in LTE trials, the firm said.

Vestberg also praised the turnaround at the firm’s handset joint venture, Sony Ericsson. Last week Sony Ericsson announced its second consecutive profitable quarter, posting net income of €12m for Q2 2010. In the same quarter last year the firm made a loss of €213m, while in Q1 2010 the firm recorded net profit of €21m. Revenues were also up, at €1.76bn, compared to €1.68bn for Q209 and €1.4bn for Q1 this year.

The results reflected a stronger performance from the firm at the higher end of the market. Unit sales were down year on year from 13.8 million to 11 million (up sequentially from 10.5 million) but average selling price was up 31 per cent on Q109 to €160.  Gross margin more than doubled over the same period to 28 per cent, but was down three per cent on the first quarter of 2010. Sony Ericsson said the drop in unit shipments reflected a cull in the firm’s product portfolio.