While the net earning reported by Ericsson may have exceeded the expectations of some financial analysts, the company faces a growing number of challenges as its joint ventures (JVs) continue to drag the company down and wary mobile operators delay infrastructure orders.
The tie-ups with Sony for handsets and STMicro-electronics for chipsets made significant dents in Ericsson's profits, with the Sony-Ericsson venture costing the company Skr2.1 billion (US$262 million), and the ST-Ericsson partnership reporting a US$89 million loss. While the company recorded a Q1 revenue increase of 12 per cent to Skr49.6 billion (US$6.2 billion), its net Q1 income fell by 35 per cent to Skr1.7 billion (US$212 million).
Looking to provide a positive spin on the situation, Carl-Henric Svanberg, Ericsson's CEO, stressed that the recession had so far had a limited impact on the mobile network market. But he added: "We have seen operators--in a few markets where local currencies have depreciated dramatically--postpone investments." He pointed to Russia and Ukraine, where some mobile operators are cutting capital spending sharply. However, both France Telecom and Deutsche Telekom have announced significant cutbacks in mobile Capex in the last few weeks.
These postponements might be balanced out by large orders from Chinese operators, but the Sony-Ericsson venture looks like it will continue to need additional financial backing, while the ST-Ericsson partnership is said not to require further funding and is anticipating breaking even in Q2 next year. This chipset JV is looking to cut 1,200 jobs in a restructuring programme that should provide annual savings of US$230 million.
Ericsson declined to provide any specific guidance for the second quarter.
For more on this story:
Electronics Weekly and Financial Times
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