Ericsson swings to Q4 profit, but N. American sales dip 19%
Ericsson (NASDAQ:ERIC) posted a net profit for the fourth quarter after a hefty loss in the year-ago period, but its sales in North America fell 19 percent year-over-year as LTE coverage rollouts peaked. Meanwhile, Ericsson CEO Hans Vestberg said he will not be taking the CEO spot at Microsoft (NASDAQ:MSFT) after it was reported he was in consideration to replace Microsoft's Steve Ballmer, who is retiring.
The Swedish vendor posted net income of around $985 million in the fourth quarter, bouncing back from a net loss of around $968 million in the year-ago period, which was mainly due to a charge Ericsson took to unwind its money-losing chipset joint venture with STMicroelectronics, ST-Ericsson.
In the fourth quarter, overall company sales were flat year-over-year at $10.29 billion, but Ericsson said they increased 4 percent when accounting for foreign currency exchange rate changes. Additionally, Ericsson's sales for the quarter got a $645 million shot in the arm thanks to a patent-licensing deal Ericsson struck earlier this week with Samsung Electronics. That deal also boosted Ericsson's net income in the quarter by around $507 million. Nonetheless, according to the Wall Street Journal and Reuters, Ericsson slightly missed analysts' sales expectations of around $10.6 billion for the quarter.
The company's networks sales were down 1 percent year-over-year, global services fell 3 percent but support solutions revenue jumped 41 percent year-over-year. Ericsson said that the large increase was mainly driven by the Samsung agreement, in which Samsung agreed to pay Ericsson patent royalties both in the form of an initial payment and on an ongoing basis.
In North America, Ericsson's largest region by sales, revenue fell 19 percent year-over-year and 5 percent from the third quarter to around $2.12 billion. As in the third quarter, Ericsson is likely facing LTE slowdowns in North America as Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) complete their initial buildouts. Verizon completed its LTE buildout last June, covering 300 million POPs, and AT&T said its LTE network, which now covers 280 million POPs, will be completed by this summer. However, Ericsson is a major vendor for Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS), which are continuing their LTE deployments.
Ericsson said in North America that its "business fundamentals remain positive" and that increased smartphone penetration, mobile broadband consumption and LTE device lineups "remain drivers for network expansion." Ericsson said that as the market has matured and networks have evolved, it has seen increased professional services business; Ericsson manages the day-to-day operations of Sprint's network, which is still undergoing a major overhaul.
Meanwhile, Vestberg told Bloomberg that he plans to stay with Ericsson. "I am committed to Ericsson," Vestberg said. "I plan to stay here if the board supports me as well as the employees and customers." Bloomberg reported earlier this month that Vestberg was a candidate to replace Ballmer.
It has been more than five months since Ballmer announced his intentions to retire. Microsoft has said it expects to make a decision on his successor early this year. According to Re/code, which cited unnamed sources, Microsoft's Satya Nadella is the likeliest internal candidate to prevail. Nadella is currently leading Microsoft's cloud and enterprise business.
Both Qualcomm's (NASDAQ:QCOM) Steve Mollenkopf and Ford Motor Co.'s Alan Mulally have been discussed as Microsoft CEO candidates, but both have said they won't accept the position.
Special Report: Wireless in the fourth quarter of 2013
Ericsson's Vestberg talks competition, new customers and where innovation will happen next
Samsung to pay Ericsson in settlement over patent dispute
Report: Microsoft considers Ericsson's Vestberg to replace Ballmer as CEO
Ericsson forecasts 3-5% growth in network gear market in years ahead
Ericsson sees pressure on sales, warns of N. American drop off