Ericsson's Q4 turnaround driven by booming N. American sales

Ericsson surprised analysts by reporting fourth-quarter sales figures above estimates helped by North American orders rising sharply to €1.97 billion the fourth quarter, a 51 per cent increase. overall net sales grew 5 per cent year-over-year to €7.77 billion.

The company said that gross profit margin also rose--widening to 31.1 per cent, beating the 30.7 per cent analysts estimated, according to Bloomberg. Ericsson also added that more lucrative projects to boost network capacity and via software sales will account for more of its business starting in the second half of the year.

However, the company also reported a fourth quarter net loss of €750 million in the quarter, compared with a €133 million net profit a year earlier, according to the Wall Street Journal. The loss was expected though and came after the company recorded a write-down of €928 million related to ST-Ericsson, its stumbling chipset joint venture with STMicroelectronics.

While North American sales are booming, helped perhaps by rival Huawei struggling to resolve political opposition in the United States, the company's sales declined in many other regions during the quarter, including in northern Europe and Central Asia, the Mediterranean, Latin America and China and Northeast Asia. Sales in Western and Central Europe jumped 3 per cent year-over-year in the quarter.

The company also blamed network upgrade deals in Europe, which require greater investment and are frequently less profitable, for impacting gross margins.

"Improving profitability, reducing costs and working capital remain high on the agenda also for 2013," CEO Hans Vestberg said in the statement. "While the macroeconomic and political uncertainty continues in certain regions, the long-term fundamentals in the industry remain attractive."

However, Vestberg told the Financial Times he was still not happy with the company's profitability. Starting in 2011 the vendor began a number of contracts to upgrade and modernize networks, projects with high initial costs. However, now Ericsson anticipates that it will turn those projects into "capacity" operations with more software sales and higher margins. Vestberg predicted that this mix of business would turn in the company's favour this year.

Commenting on the future, CFO Jan Frykhammar told FierceWireless:Europe that there was still a huge market opportunity for mobile broadband. "It's very early days for this in almost every market," he said. "We also see a long-term trend towards improved OSS/BSS systems, while the potential for LTE is huge given that deployments in many countries have only just started, or have yet to happen."

Frykhammar added that the key challenge for Ericsson was to improve its overall earnings, especially within its networks division. "Our profit level during part of 2011 and 2012 was not something we were satisfied with," he said.

For more:
- see this Ericsson release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this FT article (sub. req.)

Special Report: Wireless in the fourth quarter of 2012

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