Ericsson sees North American business stabilizing as it beats Q2 sales expectations

Ericsson (NASDAQ: ERIC) reported stronger sales and operating profit than analysts had expected in the second quarter, and the network vendor said that its business in the U.S. market had stabilized during the period.

Although sales in Ericsson's critical North American market were down 4 percent year-over-year, they were 19 percent higher than in the first quarter, an indication that its mobile broadband business in the U.S. is starting to find more solid footing.

Overall, Ericsson posted a net profit of around $244 million (SEK 2.1 billion) in the second quarter, down from around $314 million a year ago, as the company was hit by higher costs from an ongoing restructuring program. Analysts had expected a net profit of around $299 million, according a FactSet poll cited by The Wall Street Journal.

Still, Ericsson's operating profit was $418.5 million, and while down 11 percent from $465 million in the year-ago quarter, it beat an average forecast of $325.5 million in a Reuters poll of analysts.

The Swedish vendor also said net sales jumped 11 percent to $7.05 billion, beating the $6.85 billion average of estimates compiled by Bloomberg. Sales in the company's key networks unit rose 8 percent to $3.63 billion, while revenue from global services grew 14 percent to $3.07 billion.

Sales in networks were up 18 percent from the first quarter. Ericsson said that while sales in North America declined year-over-year, that decline was offset by an uptick in LTE deployments in China. Sales growth was also strong in the Middle East, India and South East Asia, Ericsson said, while it continued to be weak in Japan.

North America is Ericsson's largest region by sales, accounting for 24 percent of its revenue in the second quarter. Total sales in the region were $1.7 billion in the second quarter. Ericsson said that in North America "mobile broadband sales in the quarter stabilized, driven by data traffic growth, while operators remained focused on cash flow optimization and consolidation." The company also added that its business in the region related to ICT transformation "continued to develop favorably in the quarter."

Major Ericsson customers, including AT&T Mobility (NYSE:T), Verizon Wireless (NYSE: VZ) and T-Mobile US (NYSE:TMUS), spent heavily in the AWS-3 spectrum auction, which concluded at the end of January. AT&T spent $18.2 billion in the auction, Verizon spent $10.4 billion and T-Mobile spent $1.77 billion. However, looking ahead, all of the carriers are either now focused on deploying new spectrum bands for LTE capacity or densifying their networks, including via small cell deployments.

"We see stabilization," Ericsson CEO Hans Vestberg said of the U.S. business on a call with analysts, according to Reuters, adding "we are operating still on a lower operating level compared to last year." However, he declined to predict when U.S. sales growth might rebound.

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

Special Report: Wireless in the second quarter of 2015

Related articles:
Ericsson to be hit by SEK2.5B restructuring costs in Q2
Ericsson decides against big M&A in wake of Nokia/Alcatel-Lucent deal, will focus on organic growth
Ericsson warns North American market will 'remain slow in the short term'
Ericsson comes under spotlight after Nokia-AlcaLu unveil plans to merge
Could the Nokia/Alcatel-Lucent deal drive Ericsson to broaden its portfolio with a Ciena, Infinera or Juniper buy?
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