Ericsson's Q3 profit beats estimates as North American sales surge

Ericsson (NASDAQ:ERIC) reported stronger profits for the third quarter, beating analysts' estimates with hearty sales in North America and China. These numbers compensated for supply chain bottlenecks that continue to hamper the infrastructure industry.

The Swedish vendor posted profit of $554 million in the quarter, up from $122 million in the year-ago period, when the company was hit by restructuring costs. Analysts surveyed by Bloomberg had expected $530.4 million. Overall sales rose 2 percent to $7.15 billion. Networks sales rose 6 percent to $3.93 billion and services sales jumped 3 percent to $2.87 billion. The company cautioned, though, that worldwide demand is not as strong globally as it is in some regions, and Ericsson CEO Hans Vestberg said in a statement that "across the world, operator focus is still on reducing operating expenditure and outsourcing of operations."

However, the company said sales were stymied by continued component shortages, especially of basic components such as base-station semiconductors. The issue has plagued the entire communications industry for most of the year, as suppliers have struggled to ramp up to meet rising demand. 

"A key priority has been to mitigate the effects of industry-wide component shortage and supply chain bottlenecks," Vestberg said in the statement. "The situation has gradually improved during the quarter but it remains a challenge to fully meet the demand for mobile broadband. While the supply chain bottlenecks have been resolved the industry-wide component shortage remains."

In an interview with FierceWireless, Ericsson CFO Jan Frykhammer said the company has struggled with shortages throughout the year, and has taken steps to mitigate it; Ericsson has leaned on subcontractors to keep up with demand, and has redesigned products and delayed upgrades of some equipment. Frykhammer said the situation is improving, but that it will be a tough issue to move past. "It's frustrating because you can't deliver and satisfy your customers," he said.

"We believe we will continue to see these gradual improvements," he said. "However, if demand [for mobile broadband] continues to increase, then it will be more difficult to get back to normal lead times."

Ericsson's results were boosted by a 24 percent sales increase in China and Northeast Asia, and a whopping 223 percent sales increase in North America, to $1.94 billion. Frykhammer said the gains are due to several factors: revenues from its managed services deal with Sprint Nextel (NYSE:S), benefits from its acquisition of Nortel Networks' CDMA business, and a general increase in mobile broadband demand.

Ericsson's stock was up around 5 percent following the release of its earnings, to around $11.34 per share.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this FierceWireless Q3 earnings page 

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