Ericsson expected to post Q4 profit jump, with worries on the horizon

After struggling against the economic downturn in 2009, Ericsson is expected to report next week that its fourth-quarter core profit climbed to $1.23 billion, up from $1.1 billion a year ago.

A poll of financial analysts by Reuters indicated an expectation that the company's gross margin will dip to 37.9 per cent per cent in the fourth quarter, with 37.8 per cent being set as the target for 2011. Despite this slide, Ericsson's share price has climbed around 18 per cent since the start of last year, while the European technology index is up only 7 per cent.

However, these same industry watchers also saw problems ahead for the company given that cost-cutting and high-margin infrastructure deals have been key to the profit improvements in 2010.

"The question in 2011 is to what extent will growth balance margin erosion?" Odon de Laporte, an analyst at the brokerage firm Cheuvreux, told Reuters. "We know that modernisation deals in Europe and 3G roll-outs in India will affect margins. Hopefully that will be offset by decent top-line growth."

Commenting on Ericsson's ongoing fight with Chinese equipment vendors, Helena Nordman-Kuntson, analyst at Ohman, said, "Ericsson didn't lose market share in 2010, why should they in 2011?" This viewpoint seemed to be shared by other analysts expecting group sales to rise 4.5 per cent, after a 3 per cent fall in 2010. "But we shouldn't set too high expectations," warned Nordman-Kuntson.

Of particular note, the US, which has been Ericsson's biggest single market for the last year, is being positioned to remain buoyant, with India also undergoing a revival followed by some recovery in Europe.

For more:
- see this Reuters article

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