Ericsson hit by joint venture trouble; goes after Nortel

Swedish kit vendor Ericsson delivered an eye- watering 61 per cent drop in net profits for the second quarter as losses at its joint ventures took their toll.

Profits for the quarter to end June fell to SEK800m, from SEK2bn in the same period last year. Net sales however, were up 7 per cent year on year to SEK52.1bn.

Handset joint venture Sony Ericsson racked up a loss of €213m for the second quarter, while net loss at chip vendor ST-Ericsson racked up to $213m.

While this alone does not make a good advert for joint ventures, Ericsson’s network sales were down year over year because of the decrease in spending. While mobile data traffic is going through the roof in mature markets, leading to high growth in sales of WCDMA and transmission as well as upgrades of IP networks, GSM buildouts, primarily ongoing in emerging markets, have slowed and offset sales growth in other areas.

But Ericsson is on top of the managed services game, with services in total now representing 38 per cent of sales. The vendor recently picked up a monster seven year network management deal from Sprint with between $4.5bn and $5bn.

Under the agreement Sprint will retain full ownership and control of its CDMA, iDEN and wireline networks, but Ericsson will assume responsibility for the day-to-day services, provisioning and maintenance of the platforms. The seven year renewable agreement will see around 6,000 Sprint employees transferred to Ericsson during the third quarter of 2009.

Ericsson also said its target to reduce costs by SEK10bn from the second half of 2010 remains, and significant restructuring charges were made in the quarter.

In related news the company is also planning to bid for Nortel’s CDMA and LTE assets in the auction taking place later on Friday.

There’s a lot of fighting expected over the carcass of the Canadian equipment shop, with the Swedish firm going up against MatlinPatterson’s offer of $725m, Nokia Siemens Network’s $650m proposal, and Research In Motion’s (RIM) own problematic $1.1bn offer, which RIM says has been rejected by Nortel.