Ericsson reported a bigger decline in profit than analysts expected in the first quarter of 2013, but the Swedish equipment manufacturer said the quarter was in line with its own expectations and expects softer areas of development to balance out over the year.
The company's earnings before interest and tax, excluding the company's joint ventures, came in at around €244 million, which fell short of a mean forecast of €348 million in a Reuters poll. Overall sales were up by 2 per cent year-over-year to €6.03 billion against a forecast of €6.2 billion
The Wall Street Journal also noted that net profit of €140 million missed forecasts of €209 million. This was down from €1.03 billion a year earlier when the result was boosted by a €893 million gain from Ericsson's sale of its stake in handset maker Sony Ericsson, now owned by Sony and known as Sony Mobile Communications.
Sales in Ericsson's networks unit, which is Ericsson's biggest business, continued to grow albeit at a slower pace, increasing by 3 per cent year-over-year to €3.26 billion. As it has expressed in the past several quarters, the vendor now hopes to move more toward higher-margin network capacity projects throughout the year, after previously focusing on network coverage projects to increase market share.
"The underlying business mix, with a higher share of coverage projects than capacity projects, continued as anticipated during the quarter," Ericsson CEO Hans Vestberg said in a statement. "With present visibility of customer demand, and current global economic development, we continue to believe that the underlying business mix will start to gradually shift towards more capacity projects during the second half of 2013."
Bloomberg noted that the often less profitable network-modernisation deals in Europe caused the company's gross margin to slump to 30.2 per cent in 2011. In the first quarter of 2013, the gross margin fell to 32 per cent from 33.3 per cent a year earlier, against expectations for 33.1 per cent, reported The Wall Street Journal.
"It was very much a quarter in line with our own expectations," Ericsson CFO Jan Frykhammar said about the first-quarter results.
However, Frykhammar cited the operating cash flow of minus -€348 million as a key area of weakness, although he noted that this item tended to have an uneven spread over the year, with a stronger performance towards the end of the year.
The company reported particularly strong growth in North America in the quarter. Frykhammar said the vendor had also seen overall good development in its various European regions, with the Mediterranean area in particular reporting 14 per cent growth in total sales compared to last year. The company attributed this to modernisation projects and high project activity in France and Northwest Africa.
Frykhammar was unable to comment on competitors in the European market, such as China's Huawei and others, but stressed that "we have strength in our market share; we have been on that journey for years."
For more:
- see this Ericsson release
- see this Ericsson earnings report (PDF)
- see this Ericsson presentation (PDF)
- see this Reuters article
- see this Bloomberg article
- see this WSJ article (sub. req.)
Related Articles:
Ericsson upbeat about network gear market in 2013
Report: Ericsson readies bid for Microsoft's IPTV software unit
Ericsson rules the LTE roost, but TD-LTE will boost rivals
Report: Ericsson, Huawei tie for top spot in RAN market share
Ericsson's North American sales surge, vendor predicts improving margins