Ericsson beats analyst predictions with solid Q2 earnings

Ericsson grew net income by 76 per cent year-on-year in the second quarter of 2014, as political unrest that affected sales in some of its Middle East and Africa operations was offset by strong sales in China and India.

Hans Vestberg, Ericsson CEO

Ericsson CEO, Hans Vestberg

The equipment manufacturer generated net income of SEK2.7 billion (€292 million/$395 million) in the second quarter, compared to SEK1.5 billion in the same period of 2013, despite a marginal 1 per cent drop in sales in the recent quarter.

On a sequential basis, net income was up 57 per cent compared to the first quarter of 2014, while sales grew 13 per cent and the company maintained its gross margin at 36.4 per cent in the recent quarter, compared to 36.5 per cent in the opening three months of the year.

Despite noting that some Middle East and African markets were affected by political unrest, Ericsson CEO Hans Vestberg named the region as one of the company's success stories in the second quarter, alongside China, India and "continued capacity business in North America." Sales growth was offset by "lower revenues from two large mobile broadband coverage projects in North America that peaked in the first half of 2013, and reduced activity in Japan," Vestberg added.

The CEO also noted Ericsson's networks business grew its gross margin on the back of "improved business mix with an increased share of mobile broadband capacity projects in advanced LTE markets, as well as higher recurring IPR revenues and efficiency improvements." The networks business also began "executing on previously awarded 4G/LTE contracts in Mainland China and Taiwan" Vestberg said, after a "slow start" to rollouts in the countries.

Looking ahead, Vestberg noted Ericsson's mobile phone modem business "will start generating sales by the end of this year," as the company's M7450 modem begins to feature in "smartphones and data devices." The CEO added that Ericsson has invested SEK1.2 billion "primarily in R&D" in the first half of 2014, but added the success of the business is closely linked to the success of its handset customers.

The company's second quarter results beat analysts' expectations. Analysts polled by Reuters predicted operating income of SEK3.7 billion compared to the SEK4 billion Ericsson generated, while the Wall Street Journal  noted Ericsson's revenue of SEK54.8 billion beat the SEK52.06 billion analysts forecast.

For more:
- see Ericsson's earnings announcement
- read this Reuters article
- see this Wall Street Journal report

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