Ericsson Reports Slower Network Sales in Q4 2011

While 2011 was a year of strong sales overall, Ericsson reported lower sales in Q4 2011 due to the failed AT&T + T-Mobile USA merger in North America and more cautious operator spending in markets worldwide.


“Group sales in the quarter were flat year-over-year and grew 15% sequentially, which is weaker than normal in the fourth quarter. The sequential growth is mainly driven by a strong development of 32% in Global Services, while Networks sales were weak, up only 2%. The sales development in Networks is mainly related to North America and Russia, where the trend continued from the third quarter with slower operator spending after a period of high investments in capacity. In addition, we saw some increased operator cautiousness during the quarter due to uncertainties such as economic development and political unrest in some countries," stated Hans Vestberg, President and CEO of Ericsson.


Some highlights from Ericsson's investor presentation:


Sales in the quarter amounted to SEK 63.7 (62.8) b., was up 1% year-over-year and 15% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 6% year-over-year. The sequential increase is mainly related to strong growth in services.


Net income decreased year-over-year to SEK 1.5 (4.4) b. due to lower sales volumes in networks, lower gross
margin and losses related to Sony Ericsson. Sequentially net income decreased from SEK 3.8 b to 1.5 b. mainly
due to lower gross margin and losses related to Sony Ericsson.


Gross margin in the quarter was down year-over-year to 30.2% (36.6%), and down from 35.0% sequentially.


In 2011, sales amounted to SEK 226.9 (203.3) b., up 12%, driven by strong demand for mobile broadband along
with network rollout services. Sales in 2011 for comparable units, adjusted for currency exchange rate effects and
hedging, increased 19%.


In the fourth quarter, Ericsson’s share in earnings of joint ventures, before tax, was SEK -1.9 (-0.3) b., compared to SEK -0.6 b. in the third quarter 2011 due to significantly lower result in Sony Ericsson.


Networks


Networks sales in the quarter were SEK 33.3 (36.4) b., a decline of -9% year-over-year and up 2% sequentially. Ericsson cited slower sales in North America and Russia. North America, down -27% sequentially, was impacted by operator consolidation, technology shift from CDMA to LTE as well as a slower pace after a period of high operator
investments in network capacity.


During Q4, Ericsson shipped its first RBS6000 base station with CDMA functionality. It also began shipments of its new IP Edge router, Smart Service Router SSR 8020, and its new Antenna Integrated Radio unit (AIR).


Global Services


Global Services sales in the quarter were SEK 27.0 (22.9) b., an increase of 18% year-over-year and 32%
sequentially. In 2011, Global Services sales increased 5% to SEK 83.9 (80.1) b., driven by network rollout,
consulting and systems integration.


Professional Services sales were SEK 18.1 (16.7) b. in the quarter, up 8% year-over-year and 23% sequentially.


Managed Services sales increased by 13% year-over-year to SEK 6.0 (5.4) b. and 14% sequentially, mainly driven
by India and Latin America.


Network Rollout sales amounted to SEK 8.9 (6.2) b. in the quarter, an increase of 44% year-over-year and
56% sequentially, driven by high volumes of network modernization in Europe and coverage projects in other
regions.


Multimedia


Multimedia sales in the quarter decreased -2% year-over-year and increased 33% sequentially. The acquisition of Telcordia has just been completed.


Joint Ventures


For Q4 2011, ST-Ericsson’s sales were flat sequentially at US$409 million, down 29% year-over-year. ST-Ericsson is currently in a shift from legacy to new products. Ericsson noted that in light of the tough business environment, ST-Ericsson’s recently appointed CEO is reviewing the company’s strategic plan and financial prospects.


Sony Ericsson reported a net loss of US$207 million, reflecting intense competition, price erosion and restructuring charges. The quarter was also impacted by unfavorable macro economic conditions and effects from the flooding in Thailand. Sony is buying out Ericsson's share in this joint venture.