Ericsson delivered mostly mixed results in its first-quarter report today, and despite a decline in first-quarter sales, the company’s CFO points out that the bottom line is still stable and the company is starting to see results from cost-cutting efforts.
Ericsson today reported that group sales declined 9 percent year-over-year due to lower sales in networks, but the company saw an increase in global services. Gross margins and cash flow improved year-over-year. But operators in a number of developing markets were still cautious with investments, and that affected network sales.
The Stockholm-based company reported a first-quarter net profit of 1.26 billion Swedish kronor ($175.7 million), compared with 1.72 billion kronor ($239.9 million) a year ago. Voice-related services, such as 2G, continued to decline in the quarter but were partially offset by increased 3G sales. Sales also were affected by tight industry component supply conditions.
In an interview, CFO Jan Frykhammer noted that Ericsson has a strong position in the North American market and that the overall mobile data part of the business is encouraging. But among the challenges is that continued decline in voice traffic. The company has been trying to persuade operators to enlist its services to manage data traffic, and in the latest quarter it signed 16 managed services contracts.
The cost savings that the company announced about a year and a half ago are starting to kick in, and its joint venture companies are showing signs of improvement, Frykhammer said.
Handset-maker Sony Ericsson last week posted a long-awaited profit. ST-Ericsson, a joint venture of STMicroelectronics and Ericsson, yesterday reported that net sales decreased by 18 percent sequentially but that its restructuring plans are well on track.
Speculation that one of the JV partners would end its investment in Sony Ericsson has been rampant almost as long as it’s existed, but Frykhammer reiterated today that “we are in for the long term.”
Ericsson is on track with its previous plan to eliminate 6,500 positions globally, but at the same time, it’s adding to its North American presence through acquisitions and contract wins, including management of Sprint’s network.
While Ericsson has garnered a lot of big wins, such as with Verizon Wireless and AT&T for LTE, it remains in a highly competitive market. “We have to work hard every day,” Frykhammer said.
Earlier this week, Ericsson announced its acquisition of Nortel’s majority stake in LG-Nortel in a deal that will strengthen Ericsson’s presence in the South Korean market.
In a research note today, UBS equity analyst Maynard Um noted that while Ericsson’s “headline numbers are slightly weak, we believe the trends are encouraging,” particularly with the gross margin of 38.5 percent.