Ericsson Q1 results disappoint
Ericsson posted a surprise drop in its Q1 profits after tax due to costs following its takeover of the unprofitable Marconi and the start up of new contracts.
Surprising analysts the network giant hinted that further pressures on profitability were on the horizon as new contract business in the GSM and 3G space take root.
Net income fell 0.9 percent to 4.58bn kronor ($606m), or 0.29 krona a share, from 4.62 billion kronor, or 0.29 krona, a year earlier, Ericsson said. Sales increased to 39.18bn kronor from 31.47bn kronor. The company said the former Marconi assets generated an operating loss of about 600m kronor.
Analysts had predicted that Ericsson’s profits would be in the range of 5.26bn kronor on sales of 39.09 billion kronor. They included estimates that took the Marconi acquisition into account.
The company said the costs of integrating Marconi, as well as expenses associated with winning new contracts eroded its profitability.
Ericsson shares declined 2.4 percent to 28 kronor in pre- market trading at Instinet.
“Our strong market position and technology leadership provide us with opportunities to organically grow our business further,” Chief Executive Carl-Henric Svanberg said in a statement. “Such opportunities often include certain start-up costs and may therefore be less profitable short-term but are of obvious long-term value,” he added.
Analysts recognise the Swedish firm’s position in the 3G infrastructure market and despite the results, believe Ericsson is in good shape for the near future. Mark Newman, chief research officer at Telecoms.com’s parent Informa Media and Telecoms, said: “They are totally dominating the 3G infrastructure business and we reckon their market share is getting close to 50%. As European operators extend their 3G networks outside of urban areas and operators in developing markets take their first baby steps into 3G, Ericsson should be able to fill up its order books for the next two to three years.”
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