Thursday, April 22, 2010

Ericsson's Q1: Network Sales Decline as Global Services Rises

Ericsson's Group sales in Q1 2010 declined 9% year-over-year with lower sales in Networks but with an increase of 3% year-over-year in Global Services. Sales for comparable units, adjusted for currency exchange rate effects and hedging, declined -16% year-over-year. Gross margin, excluding restructuring, improved year-over-year to 39% (36%) due to efficiency gains and product mix.

Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.3 (-2.2) b. excluding restructuring charges, compared to SEK -0.4 b. in the fourth quarter. Sequentially, Sony Ericsson improved sales and margins significantly due to efficiency programs and new products, while ST-Ericsson's loss increased mainly due to lower sales and seasonality. Restructuring charges in joint ventures were SEK 0.1 b in the quarter.

Some highlights for the quarter:

  • Networks' sales in the quarter declined by -14% year-over-year, positively impacted by CDMA sales.
    However, tight industry component supply conditions affected sales in the quarter. This was more than
    offset by the acquired CDMA operations.

  • Voice related sales, such as 2G access and core continued to decline. Increased mobile broadband
    (3G) sales, including radio, mobile backhaul and packet core, partly offset this impact.

  • Global Services sales grew 3% year-over-year and declined -22% sequentially. Professional Services sales
    increased 4% year-over-year and in local currencies growth amounted to 12% year-over-year. Managed
    Services sales in the quarter increased by 17% year-over-year.

  • Network Rollout sales increased 3% year-over-year.

  • There is a continued good demand for services targeting the operational efficiency of operators, such
    as managed services, systems integration and consulting. Services related to 2G voice sales
    developed unfavorably.

  • Multimedia sales in the quarter decreased by -29% year-over-year and -31% sequentially, due to continued
    slower sales of revenue management solutions in regions Sub-Saharan Africa, Middle East and South
    East Asia and Oceania. Sales in multimedia brokering (IPX) were also somewhat slower.
    The TV business continued to show good development with strong demand for compression technology and
    IPTV solutions.

  • Sony-Ericsson shipped 10.5 million units in the quarter, a decrease of 28% year-over-year. Sales in the quarter were EUR 1,405 million, a decrease of 19% year-over- year.

  • ST-Ericsson's net sales in the quarter showed a -18% decrease sequentially, due to the impact of the ongoing
    portfolio transition, to seasonal effects as well as the number of days in the quarter.

Market Observations and Milestones

  • Global mobile data traffic has surpassed voice traffic.

  • In addition, 3G/WCDMA traffic has surpassed GSM traffic.

  • Ericsson's findings show that mobile data traffic globally grew 280% during the last two years
    and is forecast to double annually over the next five years. The data traffic growth is contributing to
    operator revenue growth as more and more consumers use data traffic generating devices, such
    as smartphones and laptops.

  • Mobile subscriptions grew by 184 million in the quarter to a total of 4.8 billion, returning to higher growth levels.

  • Global mobile penetration is now 70%.

  • China and India alone accounted for 44% of net mobile additions in Q1 2010 with 28 and
    53 million respectively.

  • The global number of new WCDMA subscriptions grew by 39 million in the quarter to a total of 490 million, of
    which 225 million are estimated to be HSPA. In the fourth quarter 2009, fixed broadband connections
    grew to 457 million, adding 19 million subscribers.