Monday, July 21, 2008

Ericsson Reports Sales Growth of 7%

Ericsson reported Q2 revenue of SEK 48.5 billion and operating income amounted to SEK 4.7 billion. Sales growth in constant currencies is estimated to 7% year-over-year. Sales were up 2% year-over-year including negative effects from the continued decline in USD. Effects of acquisitions and divestments equaled out in the quarter.

Gross margin amounted to 37.0% (43.0%) and declined year-over-year, mainly due to the shift in business mix with a high proportion of new network buildouts. Sales related to software and IPRs were back to a more normal level after last quarter's slightly higher level.

"The overall business activity shows stable development. With no major changes in the market environment, we still find it prudent to plan for a flattish mobile infrastructure market in 2008 and our focus on adjusting our cost base remains. Sales have continued to pick up in the US, Western Europe has remained slow while we see good development in most high-growth markets. The continued decline of the USD impacts sales growth and margins negatively also in this quarter," stated Carl-Henric Svanberg, President and CEO of Ericsson.

Some highlights of the quarter:

  • Networks Sales in Networks were down 1% year-over-year. The continued USD decline contributed negatively to the sales development. There is a steady demand for GSM equipment in high-growth markets, especially in Asia, which drives the growth for network rollout services. The margins improved slightly sequentially. Still, the proportion of buildouts of new networks in high-growth markets, including accelerating volumes in India, remains high and puts pressure on Networks' margins. Sales related to software and IPRs in the quarter returned to a more normal level.

  • Professional Services Sales in Professional Services grew by 7% year-over-year. In the quarter, the IPX operations were transferred to segment Multimedia, negatively impacting Professional Services sales by 2%-points year-over-year. Adjusted for this and in constant currencies, sales growth amounted to 11%. Operating margin was stable sequentially.

    Managed services sales increased both year-over-year and sequentially, despite the reduced scope of the 3 UK contract announced in the fourth quarter 2007. During the quarter, six new contracts were signed. The total number of subscribers in managed operations now amount to 210 million, of which more than 50% are in high-growth markets.

  • Multimedia Sales growth was 16% year-over-year despite the decline in USD. Effects from divested activities more or less offset the sales effects of acquired businesses and the transfer of the IPX operations. Operating income was slightly below break even level. The income includes the previously announced capital gain of SEK 0.2 b. from the divestment of the enterprise PBX solutions business.

  • Tandberg Television and LHS show encouraging development. Multimedia is still in its build-up phase and sales and results will fluctuate between quarters.