COPENHAGEN, Denmark (AP) Swedish wireless equipment maker Ericsson says broadband demand in North America has stabilized but remains low, with second-quarter net profit falling 20 percent to 2.1 billion kronor ($246 million).
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Data traffic growth in telecom operator networks helped sales and profits pick up in its biggest market after a sluggish start of the year, though business activity was still lower there than a year ago, Ericsson said.
“There’s probably an element of relief in the share price move, particularly around comments on North America”, Jefferies analyst Robert Lamb said, adding that cost cuts pointed to further improvement of profitability ahead. Ericsson said that while sales in North America declined year-over-year, that decline was offset by an uptick in LTE deployments in China. It is under pressure to secure its top place as a network-equipment provider following Nokia Corp.’s acquisition of France-based Alcatel-Lucent for $16.6 billion that will make a giant with revenue on par with Ericsson. This has spurred a new wave of consolidation in the industry.
Revenue came in at 60.67 billion kronor, better than 54.85 billion kronor one year ago, and higher than 57.94 billion kronor estimated by analysts.
Refusing to alter a business strategy that relies on modest growth from existing businesses coupled with steep cost-cutting, rather than a shift to act as an aggressive consolidator in search of higher growth, Ericsson shares remain 18 percent down, even after Friday’s gains. Ericsson has underperformed the STOXX Europe 600 Technology index, which has gained 14 percent in the same period.
The turnover grew 11 per cent, buoyed by currency translation effects.
– Operating income, excluding restructuring charges, improved in all segments YoY to SEK 6.3 (4.2) b. and segment Networks operating margin recovered from last quarter.
Ericsson said it accelerated restructuring of its workforce, leading to a net loss of 1,700 jobs in the quarter, mainly in its home market.
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But the company’s CEO Hans Vestberg was cautious about celebrating the results, saying the company had taken “positive” steps following a more disappointing first quarter but needed to keep working hard to reach its long term goals. Its Global Services business was up by 10% sequentially and down 2% on-year at SEK26.4 billion, while Support Solutions saw sales fall by 13% from last year to SEK3.1 billion.
