Ericsson reports drop in Q1 sales as it focuses on margins

Ericsson said sales declined by 7 per cent to 47.5 billion kronor (€5.2 billion/$7.2 billion) in the first quarter of 2014 compared to the previous year when adjusted for currency, although the Sweden-based equipment manufacturer said efforts to improve its profit margin are having a positive impact.

In the recent quarter, the operating margin improved year on year in all segments to 5.5 per cent (from 4.0 per cent) mainly driven by mobile broadband capacity sales and lower restructuring charges. The gross margin grew to 36.5 per cent from 32 per cent a year previously, although it was down on a sequential basis. Operating cash flow amounted to 9.4 billion kronor, compared to a negative operating cash flow of minus 3.0 billion kronor in the first quarter of 2013.

"Our focus on profitability is paying off with gross margin improvement YoY, both including and excluding restructuring," said Ericsson CEO Hans Vestberg. "All segments also showed improved operating margins."

Ericsson blamed the lower sales, which missed the average of estimates compiled by Bloomberg of 50.8 billion kronor, on declines in North America and Japan, which were partially offset by business in China, the Middle East and Latin America.

Ericsson expects large contracts is has recently won to start having an impact on its the business mix and sales in the second half of the year: Vestberg noted that such deals include the LTE contracts in mainland China as well as more recent LTE contracts in Japan and Taiwan, plus a five-year contract awarded by Vodafone in Europe under the operator's Project Spring network upgrade programme.

In the U.S., AT&T has also selected Ericsson as a partner for its Domain 2.0 initiative that aims to simplify and scale its network utilising network functions virtualisation (NFV) and software-defined networking (SDN).

Ericsson added that there is growing interest in its small-cell indoor solution, Ericsson Radio Dot System, with a further seven operators trialling the service.

The company also warned that the political unrest in parts of the Middle East and Africa is still impacting sales, although the current political uncertainty in Russia and Ukraine did not impact sales in the first quarter. In 2013 Ericsson reported sales of 5.9 billion kronor in Russia and Ukraine.

For more:
- see Ericsson's first-quarter results statement
- see this Bloomberg article

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