4G capacity demand drives Ericsson Q2 recovery

Network infrastructure vendor Ericsson has reported Q2 earnings down 1% from the year-ago quarter, but up 13% from Q1. “Sales in the quarter year-over-year were driven by growth in the Middle East, China and India, as well as continued capacity business in North America,” said Ericsson CEO Hans Vestberg.

Speaking to Telecoms.com Ericsson CFO Jan Frykhammar was keen to emphasise the sequential improvement. “We had a good recovery in top line in this second quarter, especially when you think about the first quarter that was quite weak from a top line point of view,” he said.

“The recovery compared to the first quarter, where we had a decline of around 9%, is quite a good comeback. The difference is being driven very much by capacity or quality enhancements on especially the 4G but also the 3G networks.”

Ericsson’s network business involves initially building the basic network coverage, than augmenting that network with more capacity or adding more sites, otherwise known as densification. The global roll-out of LTE, coupled with exponential growth in mobile video, ensures plenty of capacity and densification business for Ericsson.

But while the Networks division was responsible for much of the sequential improvement in Ericsson’s revenues, it’s software and services that account for an ever-increasing proportion of them. Networks still account for around 55% of Ericsson revenues but Services, which includes managed service and network roll-out, now contributes around 40% of the total. The remainder is split between Support Solutions, which includes BSS/OSS software and video solutions, and modems.

We asked Frykhammar if he expects Networks to eventually form the minority of Ericsson revenues. “If we look three years out, at three-year average growth, the networks market is around 2-4%, services is slightly higher than that, around 5-7% growth, and we think support solutions will grow by around 9-11%, or something like that,” he said.

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“Over time services has been growing more than networks, and support solutions is a business that we’re still in the establishment phase with, on TV media, OSS/BSS, etc. So, over time, if they’re successful, that business from lower levels should grow faster than the others.

“Ten years ago, when we formed services, we had 20% of company revenue from services, now we typically have double that. Since video is the key driver of traffic today, as a result of smartphone usage and so forth, to have good TV and media solutions is important to be able to support operators with that, but also to capture those kinds of revenue streams.”

Giant infrastructure vendors such as Ericsson have to move with the times, and operators are increasingly looking to software and services to optimize their networks and improve their offerings. If Ericsson doesn’t provide those solutions there’s no shortage of other companies that will.