Wednesday, July 20, 2011

Ericsson's Q2 Sees Boost from Mobile Broadband

Ericsson reported Q2 sales of SEK 54.8 (48.0) b., up 14% year-over-year and 3% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 27% year-over-year. Including acquired businesses sales increased further 2%-points. The strong growth we have seen in the past quarters continued also this quarter. Gross margin in the quarter was down year-over-year at 37.8% (39.0%), and was slightly down from 38.5% sequentially. Restructuring charges related to activities in Sweden of SEK 0.1 b. impacted cost of sales. Year-over-year, margins were negatively impacted by 3G rollouts in India as well as network modernization projects in Europe. A lower share of services revenues had a positive impact. Sequentially, margins were negatively impacted by a change in project mix with a higher proportion of services, especially network rollout. In the first quarter 2011, sales and margins were positively impacted by a one-off revenue from the sale of patents of SEK 0.3 b.

"Group sales in the quarter increased by 14% year-over-year driven by a continued strong demand for mobile broadband. Sales were negatively impacted by the strong SEK and sales for comparable units, adjusted for currency and hedging, increased 27% year-over-year. The strong growth we have seen in the past quarters continued also this quarter," says Hans Vestberg, President and CEO of Ericsson.


Brazil, China, Germany, Korea, and Russia showed especially strong growth both year-over-year and sequentially. The US maintained its high business activity although sequentially the networks business was somewhat slower while services continued to show good development.


Segment Networks sales grew 31% year-over-year. In addition to continued increased sales of mobile broadband, IP network product revenues showed strong development.


Segment Global Services sales decreased -5% year-over-year primarily due to currency exchange rate effects. In local currencies Professional Services sales were almost flat. Managed Services sales were down compared to the second quarter 2010. The underlying fundamental growth drivers for the services business remain and customer interest is high.


Segment Multimedia sales were down -2% year-over-year, however, with good traction for revenue management.


The quarter was challenging for Ericsson's joint ventures and both reported losses. Sony Ericsson's profitability was impacted by the earthquake in Japan resulting in supply chain constraints of close to 1.5 million units. ST-Ericsson increased its loss in the quarter mainly due to recent changes in the market demand for feature phones.


Net income improved year-over-year to SEK 3.2 (2.0) b. due to higher sales volumes and despite a negative impact from increased loss in joint ventures. Sequentially net income decreased from SEK 4.1 b. mainly due to the loss of SEK -0.8 b. in joint ventures and higher restructuring charges.


Operating income, excluding joint ventures, decreased to SEK 5.0 (5.3) b. in the quarter negatively impacted by the one-off restructuring charge of SEK 1.3 b related to reduction of staff in Sweden. As a result, operating margin decreased to 9.2% (11.1%) year-over-year. Excluding the one-off restructuring charge operating margin amounted to 11.6%.


Earnings per share were SEK 0.96 (0.58) in the quarter. Earnings per share, Non-IFRS, diluted, i.e. excluding amortizations and write-downs of acquired intangibles, were SEK 1.21 (0.85) in the second quarter, up 42%.http://

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