Ericsson CEO: future revenue growth from mobile broadband

Despite reporting falling sales in its second quarter results, Ericsson CEO Hans Vestberg attempted to put a positive spin on its prospects by stating that long-term growth should be healthy as the uptake of mobile broadband continues.

The company said that a factor behind its weaker-than-expected second-quarter net profit was a shortage of key components for its base stations. Vestberg said there had been a shortage of unbranded, white-label semiconductors for its base stations, and blamed chipset suppliers for not investing in manufacturing capacity during the recent economic downturn.

"While operators showed a continued demand for mobile broadband driven by smartphone and laptop usage," said Vestberg, "sales were impacted by continued industry component shortages and supply chain bottlenecks. We estimate that this had a negative impact on our sales in the quarter by SKr3 billion to SKr4 billion."

However, while the company reported a second quarter profit of SKr1.9 billion, double the year-ago figure of Skr831 million, other issues were also thought to have damaged these numbers--such as uncertainty in India, price wars and lower infrastructure sales.

Looking to the future, Vestberg claimed the infrastructure industry was never likely see a return to the 20 per cent--30 per cent yearly growth rates of the late 1990s, when equipment vendors installed 100s of completely new (and high margin) networks worldwide.

"Now, much of the infrastructure is already out there so the business is more about upgrading existing base stations, selling software and providing services, and this doesn't make for the same sales growth," Vestberg said.

The company also reported that it had completed the cost-cutting program it launched in the first quarter of 2009, leading to expected annual savings of SKr15-16 billion from the second half of 2010 and total restructuring charges of SKr15.5 billion.

Commenting on these latest results, Redeye analyst, Greger Johansson, said that sales and net profit were weaker than expected but the gross margin was relatively strong, arguing well for its profitability if market conditions and sales improve. "Component shortages that hit second-quarter sales should be a temporary issue," he said.

For more on this story:
- read Rethink Wireless & Total Telecom

Related stories:
Ericsson looks for faster growth; but TeliaSonera dampens hope
Ericsson maintains services lead, but upstarts growing fast
NSN turns surprise profit; Ericsson reports surprise downturn
Ericsson highlights LTE advantages, as WiMAX wobbles

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