Ericsson shocks market with 66% Q4 profit slide

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Ericsson surprised the market by announcing a 66 percent slump in fourth-quarter net profit of €170.3 million, down from around €499 million in the year-ago period. The Swedish vendor put the blame on declining sales in its core networks business and said that operators are being cautious about network spending.

The quarterly results were "really bad," Alandsbanken analyst Lars Soderfjell told Dow Jones Newswires. "The big negative surprise is the weak performance for Ericsson's networks business unit, where sales have fallen brutally. This is primarily a result of weak sales in North America."

In an attempt to steer the focus away from the quarterly results, CEO Hans Vestberg said in a statement that full-year sales for 2011 had increased by 12 per cent to €25.7 billion while net profit rose by 9 per cent to €1.43 billion.

"For the full year 2011, we had a strong sales growth and an increase in net income," Vestberg said in a statement. "In the fourth quarter, however, we saw weaker development in networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernisation projects in Europe, and a higher services share."

Adding more detail, Ericsson CFO Jan Frykhammar told Telecoms.com that the cause of this poor quarterly performance was a slowdown in network spending in North America and Russia. The company had also been building its strength in Europe, taking on less profitable deals with the aim of winning more repeat business in the future--a strategy that is working but has impacted the gross margin as a result.

Frykhammar also highlighted the 70 new managed services contracts Ericsson had won during 2011, together with the strong growth in consultancy and systems integration helped along by its acquisition of OSS/BSS vendor Telcordia.

However, Robert Jakobsen, analyst at Jyske Bank, was less upbeat in his assessment: "It is hard to find anything positive in the report," he told Reuters. "The company has indicated there would be a slowdown, but this is much worse than expected."

For more:
- see this release
- see this AFP article
- see this Telecoms.com article
- see this Reuters article

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