Ericsson Q3 profit rises 4 pct, margins weaken

AP News
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Posted: Oct 20, 2011 3:41 AM
Ericsson Q3 profit rises 4 pct, margins weaken

Wireless equipment maker LM Ericsson AB on Thursday reported a 4 percent rise in third-quarter profit as strong mobile broadband sales and increased market share offset weaker margins.

Ericsson said third-quarter net profit rose to 3.8 billion kronor ($574 million) from 3.7 billion kronor in the same period a year ago. Sales for the July-September period were particularly buoyant, increasing 17 percent to 55.5 billion kronor.

Ericsson CEO Hans Vestberg said sales were driven by a continued strong demand for mobile broadband as well as increased services revenues.

"Our performance year-to-date reaffirms our indications of a strengthened global market share," he said.

However, the increased share of services business, as well as a higher proportion of coverage projects and accelerating network modernization projects in Europe had a negative impact on the company's gross margin, which decreased to 35 percent from 39 percent a year ago.

Greger Johansson, an analyst with research firm Redeye, said the margin was weaker than expected.

"The positive thing is that both sales and profits were clearly better than expected," Johansson said. "The negative is the gross margin and the fact the company indicates it will remain weak going forward."

He said the low-margin modernization projects in Europe also weighed on the result of Ericsson's "most important segment," networks.

Shares in Ericsson, which fell around 5 percent on Wednesday following a weak report by U.S. wireless supplier Powerwave Technologies Inc., rose by 1.9 percent to 66.8 kronor ($10.1) in early Stockholm trading.

The company also said the effects on its supply chain from the earthquake and tsunami in Japan in March had run their course.

Looking ahead, the company said it "cannot exclude somewhat more cautious short-term operator spending," considering the economic uncertainties in parts of the world.

Ericsson is the world leader in rolling out and upgrading mobile network infrastructure as the world's wireless users grow in number, boosting demand for ever-faster network speeds. Its biggest competitors are China's Huawei and Finnish-German joint venture Nokia Siemens.

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Malin Rising can be reached at http://twitter.com/malinrising