Ericsson is hit by component shortages, weak demand

Swedish infrastructure vendor Ericsson (NASDAQ: ERIC) disappointed investors with lower-than-expected second quarter 2010 profits. The company reported that component shortages, tight supply and weak demand caused its net profit to be $260 million, which is double what the company did in the same quarter last year ($112.8 million), but significantly lower than what analysts predicted.

Sales declined 7.9 percent to $6.5 billion down from $7.05 billion. Ericsson President and CEO Hans Vestberg said that the market conditions the company saw in the second half of 2009 with mixed operator investment behavior prevailed in the first half of this year. Specifically, group sales in the quarter declined 8 percent year-over-year with lower sales in networks. Sales in global services were flat due to a decline in network rollouts. The one positive area was professional services, which increased its sales by 5 percent.

The North American market was a sweet spot for the Swedish firm. Sales in North America increased 128 percent year-over-year and 37 percent sequentially. The growth was attributed to strong data growth which meant operators increased their investments in network capacity. In addition, during the quarter Ericsson said it started volume deliveries of 4G/LTE gear.

Vestberg said that the company's cost reduction activities have reduced operating expenses as planned. However, the integration of the CDMA business acquired from Nortel as well as higher investment in R&D and the growing number of 4G/LTE trials have resulted in an increase in operating expenses.

Ericsson is expected to face increased competition from Nokia Siemens Networks (NYSE:NOK) in North America. Last week NSN agreed to buy Motorola's (NYSE:MOT) wireless networks business for $1.2 billion, and the deal is expected to close by year-end.

For more:
- see this press release
- see this Bloomberg article
- see this Wall Street Journal article (sub. req.)
- check out the FierceWireless Q2 earnings page

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