Ericsson's Q3 profits tumble 43% as operators rein in spending

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Ericsson said its profit in the third quarter fell by 43 per cent as operators around the world curbed spending on network equipment.

The company says that net income for the quarter was €251 million compared to €440 million a year ago. Gross margins slid to 30.4 per cent from 35 per cent, missing the 32.2 per cent average of analysts' estimates compiled by Bloomberg.

"We see a continued macroeconomic slowdown and political unrest in parts of the world, which has led to more cautious operator spending in some parts of the world," Ericsson CEO Hans Vestberg said in a statement.

The company added that sales in its key networks unit fell 17 per cent year-on-year, reflecting lower sales in parts of Europe, a continued decline in CDMA sales in the United States and China and lower 3G sales in Russia. CDMA equipment sales continued its expected rapid decline with a 50 per cent year-on-year drop.

Technology Business Research said that Ericsson's network sales in Northern Europe and Central Asia, Western and Central Europe, and countries bordering the Mediterranean saw year-to-year declines of 38 per cent, 48 per cent and 11 per cent, respectively.

Vestberg, however, put a positive spin on Ericsson's long- term prospects, noting 1 billion smartphones such as Apple's iPhone had been sold and new LTE handsets were being launched that would drive data traffic and network demand.

"We see ... mobility, broadband and cloud services ... definitely going to be used in a big way and transform not only us as users, but also industries and our society for years to come," he told Reuters.

Hannu Rauhala, an analyst at Pohjola Bank Oyj in Helsinki, seemed relaxed about Ericsson's results, telling Bloomberg: "The gross margin was weak in the quarter so it seems the pressure on profitability will remain for a bit longer. Still, the company has a good foundation and once the business mix improves, with the rising use of smartphones around the world, margins and profits will rebound."

This view was echoed by Pierre Ferragu, analyst at brokerage Sanford Bernstein: "To me it is just a question of waiting for a better economic environment," he told Reuters.

To address the financial problem, Vestberg said the company would continue proactively to look at costa and efficiencies, despite already reporting a 7 per cent drop in Opex for the quarter. Vestberg gave no further indication on any planned cost-cutting measures.

For more:
- see this release
- see this Ericsson report (PDF)
- see this Bloomberg article
- see this Reuters article
- see this Technology Business Research article

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