Ericsson grows profits despite marginal revenue decline in Q1 2016

Ericsson CEO Hans Vestberg blamed weak development of the vendor's European business for a year-on-year drop in sales during the opening quarter of 2016.

Reported net sales declined by 2 per cent year-on-year to SEK52.2 billion (€5.6 billion/$6.4 billion) in the first quarter of 2016, though Vestberg noted that the figure was stable when "adjusted for comparable units and currency" with a marginal 1 per cent decline year-on-year on that basis.

Vestberg explained that the networks division's sales were affected by a "continued weak macro-economic environment…in some emerging markets in the Middle East and Latin America." The drop in European sales was mostly due to the "completion of mobile broadband projects," the CEO noted.

Sales at Ericsson's global services business also declined, "mainly due to lower network rollout activities in Europe and Latin America," Vestberg explained. In contrast, the professional services division generated stable sales "with growth in consulting and systems integration driven by transformation projects and stable managed services sales".

Ericsson also saw growth in IPR licensing revenues, while software sales in IP and core networks declined.

Despite the overall decline in sales, Ericsson's profits increased in the first quarter of 2016. Net income grew 45 per cent year-on-year to SEK2.1 billion, while operating income was up 63 per cent at SEK3.5 billion. Operating margin grew from 4 per cent in the opening quarter of 2015 to 6.7 per cent in Q1 2016.

However, analysts at Bernstein expressed concern about the company's ability to sustain the improvements to its profitability, the Financial Times reported.

Vestberg reiterated that Ericsson's focus for 2016 is on winning 4G and 5G business, improving profitability in key sectors, and increasing savings as part of an ongoing cost and efficiency programme.

The vendor separately announced a new company structure and changes to its executive team that are designed to help it meet those targets.

Ericsson's networks unit will be split into network products and network services, and it plans to form two IT and cloud business units -- again focused on products and services respectively. The vendor also plans to open a new media business unit focused on software sales and recurring business in its consulting and systems integration, and broadcast services businesses.

Key appointments to Ericsson's executive leadership team, which will come into effect on July 1, include Arun Bansal as SVP and head of the network products unit; Fredrik Jejdling, SVP and head of network sales; Anders Lindblad, SVP and head of IT and cloud Products; and Jean-Philippe Poirault, SVP and head of IT and cloud services.

For more:
- see Ericsson's Q1 2016 earnings announcement
- view the vendor's structure statement
- see this statement on the executive team
- read this Financial Times article

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