Ericsson's Q1 profits jump on sale of handset stake, N. America strength

Ericsson (NASDAQ:ERIC) reported a strong profit for the first quarter, based in large part on its sale of its 50 percent stake in Sony Ericsson to Sony, as well as stronger sequential sales from North America.

The Swedish vendor posted a net profit of $1.3 billion, which was boosted by a $1.1 billion gain from the sale of the Sony Ericsson stake. Ericsson's profit was up strongly from the $609 million profit the company posted in the first quarter of 2010.

Overall sales were down 4 percent year-over-year to $7.57 billion due to an expected drop in CDMA sales as well as lower carrier spending.

In the company's networks business, sales were down 18 percent year-over-year to $4.05 billion. In an interview with FierceWireless, Ericsson CFO Jan Frykhammar said the company's first quarter last year benefited from significant investment by carriers in their networks, especially in Russia and China. Ericsson said sales in its first quarter of this year were impacted by "cautious operator spending in regions with macro-economic or political uncertainty" and that CDMA sales declined 40 percent from the year-ago period. However, Ericsson said demand for HSPA and LTE were strong in the quarter, following an increased focus on network performance, especially in North America.

Meanwhile, sales in Ericsson's services business were up 18 percent from the year-ago period, to $3.06 billion. "It shows also the strength of the company to have a strong services business that can compensate for the fluctuations in the networks business," Frykhammar said.

Sales in North America were down 3 percent from the year-ago period to $1.9 billion, but were up 14 percent from the fourth quarter of 2011, making North America the only region where Ericsson saw a sequential rise in sales. Ericsson said strong HSPA capacity sales and a continued buildout of LTE coverage more than offset the major decline in CDMA sales.

"The pattern in the U.S. was somewhat abnormal. We usually don't see the kind of sequential increase in investments by operators that we now saw between the fourth and the first quarter," Ericsson CEO Hans Vestberg said in an interview with Dow Jones Newswires.

Frykhammar, however, said that Ericsson was not all that surprised by the sequential uptick in North American sales, noting that there had been uncertainty last year over CDMA investment as well as from AT&T's (NYSE:T) failed $39 billion acquisition of T-Mobile USA. He did say, however, that Ericsson expects CDMA sales to continue to decline, despite a large installed base of carriers using CDMA equipment, as more carriers transition to LTE.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this MarketWatch article

Special Report: Wireless in the first quarter of 2012

Related Articles:
ABI: Mobile core revenue fell 13% in 2011
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