Ericsson takes Q2 profit hit, N. American sales decline

Ericsson (NASDAQ:ERIC) reported weaker-than-expected profit in the second quarter because of a charge it took related to restructuring and job cuts. The company also said its sales in North America declined, even though sales overall were up for the quarter.

The world's largest infrastructure vendor posted net profit of $486 million, a rise from the net profit of $295 million it posted in the year-ago quarter. However, that missed analyst expectations, according to Bloomberg, of net profit of around $604 million. The company booked a charge of $265 million in the quarter related to restructuring costs, mainly associated with job cuts in its native Sweden.

Overall, total sales jumped to $8.53 billion, up 14 percent from $7.47 billion in the year-ago period. Networks sales came in at $5.2 billion, up 31 percent from $3.97 billion in the year-ago period.

Nevertheless, sales in North America were off by 6 percent year-over-year, down to $1.92 billion. (In the first quarter, the vendor said sales in North America, Ericsson's largest market in terms of revenue, rose 39 percent in the quarter to $2.16 billion.) The company blamed the second quarter decline on a strong Swedish krona as well as a slowdown in U.S. operator spending after a period of high operator investments in network capacity. However, Ericsson said its services business in North America continued to show good development.

"I think the most important reason [for the decline in North American sales] is the krona," Ericsson CFO Jan Frykhammar said in an interview with FierceWireless. "Obviously we have been operating on extremely high levels on North America for a long time, and from time to time there is some softening in an individual quarter. I think the important thing to note is that the fundamental underlying demand for mobile broadband continues."

Ericsson had several major developments in the quarter, including a deal for a seven-year network-outsourcing contract with Clearwire (NASDAQ:CLWR). Nearly two years ago, Ericsson inked a similar, $5 billion agreement with Sprint Nextel (NYSE:S), Clearwire's majority owner. Frykhammar said the Clearwire deal, which went into effect at the end of June, "is an important add-on to our strong managed services operations. It's another proof point of the fact that the model works and that customers have confidence in our ability to operate their networks."

Ericsson also during the quarter said it will acquire OSS/BSS vendor Telcordia for $1.15 billion, giving Ericsson another edge in the services market. Frykhammar said the deal remains on track and that Ericsson has submitted all of the appropriate regulatory approvals.

Frykhammar declined to comment on Ericsson's involvement in a consortium that made a winning $4.5 billion bid for Nortel networks' patent portfolio in a bankruptcy auction. Ericsson said it will pay $340 million as part of the bid. "I think in general terms, it is important to have a strong patent portfolio in telecom overall," he said. "That is obviously why we were looking at this asset from the beginning."

For more:
- see this release
- see this Bloomberg article
- see this Reuters article
- see this Dow Jones Newswires article (sub. req.)

Special Report: Wireless in the second quarter of 2011

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