Ericsson’s profit doubles on smartphone unit selloff
Ericsson managed to double its first-quarter profits despite slumping sales after its divestiture of its smartphone business buoyed its bottom line.
The Swedish infrastructure manufacturer said the sale of Sony Ericsson to co-parent Sony added $1.14 billion to its profits, bringing net income to $1.3 billion from $608 million last year.
Sales dipped 4 percent year-over-year to $7.5 billion as operators planning to move to LTE cut back spending on legacy CDMA networks.
Ericsson has shifted its focus away from smartphones toward its core equipment business as part of a larger strategy to cash in on network upgrades – particularly in the U.S. market, where operators are rolling out LTE and adding capacity to 3G services to meet the data demands of their smartphone customers. European markets continue to be weakened by the debt crisis.
President and CEO Hans Vestberg said Ericsson currently holds more than 60 percent of the LTE market.
"With the completed divestment of Sony Ericsson, we have left the consumer part of the handset business in order to focus on enabling connectivity for all devices, handsets and beyond," he said. "Last year, we gained market share in our core businesses and continued to build a strong LTE position where we have more than 60 percent market share."
Ericsson's change in course has not been limited to shedding its consumer handset division. It recently boosted its Wi-Fi products with the acquisition of BelAir Networks and moved to increase its presence in the media industry by purchasing Technicolor's broadcast services business.
One consistent trouble spot for Ericsson is its loss-making joint venture with STMicroelectronics, which has never made a profit since its formation in 2009 and continues to weigh down the earnings of its parent companies.
ST-Ericsson announced a major restructuring yesterday aimed at bringing it into profitability for the first time in its three-year existence amid $312 million in losses. It plans to layoff 1,700 people as part of the overhaul.
Vestberg expressed confidence in ST-Ericsson's turnaround effort.
"We remain confident that ST-Ericsson has a strategic position in the industry to enable the device ecosystem," he said.
The stock market had little reaction to Ericsson's financial results, and its shares remained relatively flat in early Nasdaq trading.