Ericsson (NASDAQ:ERIC) reported a 66 percent drop in net profit as the company confronted tepid operator spending and declining North American sales, particularly for CDMA products. Nevertheless, the Swedish vendor said it will become more efficient and focus on winning LTE business as carriers continue to upgrade their networks.
In the fourth quarter Ericsson posted a net profit of $222 million, down sharply from $651 million in the year-ago period, and well below analysts' expectations, according to Bloomberg. Overall sales inched up just 1 percent to $9.42 billion. Sales in the company's networks business, its largest unit, fell 9 percent to $4.9 billion, due mainly to weakness in Russia and North America.
The vendor said that networks sales in North America were down 27 percent, and that the market was impacted by "operator consolidation, technology shift from CDMA to LTE as well as a slower pace after a period of high operator investments in network capacity." In North America, where overall sales declined 20 percent in the quarter, Ericsson said CDMA sales declined sequentially and year-over-year "as a result of the ongoing rapid technology shift to LTE."
In an interview with FierceWireless, Ericsson CFO Jan Frykhammar said that the company knew when it acquired Nortel Network's CDMA and LTE units in 2010 that its CDMA installed base in North America would decline over time. "We think it has peaked and we think that the transition to LTE will now happen, and this will become more of a service business with maintenance and support," he said.
Frykhammar noted that Ericsson remains in a strong position in North America and that the shift to adopt and deploy LTE networks will now accelerate. Overall, he said that Ericsson is sensing some caution from carriers around the world on network spending but that the underlying conditions of continued mobile broadband growth and smartphone usage remained strong.
Despite the weaker results, Ericsson CEO Hans Vestberg said the company will not embark on any major restructuring like its smaller rival Nokia Siemens Networks, which plans to cut up to 17,000 jobs and focus solely on mobile broadband. "That said, we're not planning across-the-board restructuring or layoff programs," Vestberg said in an interview with Dow Jones Newswires. "Instead, I expect that all our business units will continue to focus on becoming more efficient."
Vestberg also added that he is confident Ericsson gained market share from its rivals in 2011 and that investments in LTE will pick up. "This shift in technology means that there is a period when sales will slow down, but over time investments in next-generation networks will become very important for us," he said.
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