Thursday, July 19, 2012

Ericsson's Q2 Sees Decline in Network Sales, Growth in Global Services

Ericsson's Q2 Sales increased 1% YoY and 9% QoQ to SEK 55.3 billion, although sales for comparable units, adjusted for FX and hedging, decreased -6% YoY. Gross margin was down YoY to 32.0% (37.8%), and from 33.3% QoQ. Net income decreased to SEK 1.2 (3.2) b. due to lower profitability in Networks and increased loss in ST-Ericsson. EPS diluted was SEK 0.34 (0.96). EPS Non-IFRS, excluding restructuring, was SEK 0.78 (1.60).

“In the quarter, demand for Global Services and Support Solutions was strong, while Networks sales decreased YoY mainly due to the expected decline in CDMA equipment sales as well as lower business activity in China, including weaker sales of GSM and lower 3G sales in Russia,” says Hans Vestberg, President and CEO of Ericsson. “In Global Services all areas showed good growth in the quarter due to operators’ focus on operational efficiency and high project activities. The strong development for Support Solutions was driven by billing systems and TV solutions. Global Services and Support Solutions together represented about half of the Group’s revenues. The growing Global Services business has a dilutive impact on gross margin."

Some notes from the company's financial presentation:

  • Networks sales decreased -17% YoY primarily due to the expected decline in CDMA equipment sales as well as weaker development for GSM sales in China and slower operator investments in Russia. CDMA equipment sales declined close to -50% YoY to SEK 2 b. and are expected to continue its rapid decline in H212.
  • Ericsson now has seven contracts for its Smart Services Router (SSR) signed to date.
  • Ericsson sees greater LTE sales as the technology is now reaching outside initial rollout countries.
  • Global Services continued to show strong momentum with growth of 26% YoY and 17% QoQ and all areas grew. 
  • The acquired Telcordia operation added sales of SEK 1.1 b. in the quarter, split 50/50 between segments Global Services and Support Solutions.
  • Global Services represented 44% (35%) of total sales in the quarter compared to 40% in Q112. Support Solutions sales were strong with 47% growth YoY and 15% QoQ driven by strong demand for billing systems and TV solutions.
  • The company noted 17 new signed contracts in Managed Services. 
  • Both Global Services and Support Solutions were positively impacted by the added sales from the acquired Telcordia. The growth in these areas are dilutive to the Group's overall gross margin. 

See also