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Ericsson posts strong quarter, but shares trade down

Thu, 07/21/2011 - 8:05am
Monica Alleven, Wireless Week

Ericsson's biggest problems seem to be coming not from itself but in the two joint ventures in which it is invested.

Reporting its second-quarter results today, the company's profit increased 60 percent but was lower than expected, and shares were trading down about 7 percent this morning on the Nasdaq.  Ericsson's sales rose 14 percent in the quarter.

In North America, sales declined 6 percent. In an interview, CFO Jan Frykhammar said not to read too much into the somewhat slower networks business sales; there have been many quarters of heavy deployment of capacity in the CDMA/WCDMA/HSPA areas and from time to time, there will be slower quarters. Results also were affected by the Swedish krona being stronger than the U.S. dollar.

"Overall, the market fundamentals are very strong in North America," he said, and the uptake in mobile broadband continues. The main uncertainties are the same as the company had in the first quarter, which revolve around the impact of AT&T's proposed merger of T-Mobile USA and the timing of the decline in the CDMA business – whether it's 2011, 2012 or 2013.  "Sooner or later, that [CDMA] business will start to decline," he said.

Of course, Ericsson is focusing a lot on turning around both joint ventures, ST-Ericsson and Sony Ericsson. Sony Ericsson's profitability was affected by the earthquake in Japan resulting in supply chain constraints of close to 1.5 million handsets. ST-Ericsson increased its loss in the quarter mainly due to recent changes in the market demand for feature phones.

Earlier during a webcast event with journalists, CEO Hans Vestberg acknowledged the challenges with ST-Ericsson and said executives still believe it's a very important asset.

Overall in the quarter, Ericsson saw especially strong growth in Brazil, China, Germany, Korea and Russia. In Sweden, where Ericsson is laying off employees, the company ended up doing more voluntary packages and early retirements than anticipated and its restructuring charges for 2011 are now estimated at 3 billion SEK compared with an earlier estimate of 2 billion SEK.

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