STOCKHOLM -(Dow Jones)- Telefon AB LM Ericsson (ERICY) Friday posted a 22% increase in third-quarter net profit as the Swedish telecommunications equipment maker stole market share off some of its key rivals.
Net income attributable to stockholders of the parent rose to SEK5.31 billion ($684 million) in the quarter from SEK4.35 billion a year earlier, and was slightly below analysts' forecasts for around SEK5.49 billion. Cost control and lower financial expenses helped bolster earnings.
Sales rose 14% to SEK36.2 billion, and revenue from the core wireless infrastructure business gained at a faster pace than at Nokia Corp. (NOK) and Motorola Inc. (MOT). "We have taken market share clearly," Ericsson Chief Executive Carl-Henric Svanberg said at a news conference.
Ericsson - the world's largest mobile networks supplier - has continued to boost sales amid a pickup in spending by telecoms operators, which are upgrading and expanding their networks. Still, Ericsson has tried to keep a lid on research and development expenditure and selling costs to help stem a drop in margins, which are under pressure as vendors slash prices to win orders.
The company "gained share - especially we think from Nokia, but this alone is not enough to prop up growth on increasingly challenging comparisons," said Richard Windsor, an analyst at Nomura in London. He rates the stock sell.
On Thursday, Nokia said it expects sales at its networks arm to fall in the fourth quarter because it isn't strong in markets where growth is fastest. The Finnish company's networks unit makes about a fifth of group revenues and eked out a 2% rise to EUR1.6 billion in the third quarter.
At 0900 GMT, Ericsson shares traded down SEK0.20, or 0.8%, at SEK26.00 in a lower broader market in Stockholm.
While the results were "slightly weaker than expected, profitability and growth remained at very healthy levels," Windsor noted.
The much-watched gross margin fell to 45.2% in the quarter from 47.1% a year ago as sales of services grew at a faster rate than other revenues. Services have a lower gross margin. The company added that a high proportion of large network rollouts also depressed margins as such contracts often carry lower prices than smaller follow-up orders.
Overall, third-quarter sales were buoyed by growth in North America and Latin America. Ericsson recently started shipments on a major order from U.S. operator Cingular Wireless (CIW.XX) among others.
A 20% jump in sales in the Asia Pacific region - despite weakness in the Chinese markets - also helped fuel gains.
The company said sales in western Europe were unchanged year-on-year, though Italy and Spain posted increases.
Svanberg said that 2006 growth in Asia and Eastern Europe, the Middle East and Africa will be similar to this year, while western Europe will remain little changed.
This month, Ericsson has unveiled orders worth around $290 million from two Chinese operators as well as contracts from Movistar Argentina and Poland's Polska Telefonia Cyfrowa (PTC.YY).
The company reiterated its outlook for moderate growth in the wireless infrastructure market in 2005, in dollar terms, and said it expects a similar development in 2006.
Analysts generally interpret Ericsson's forecast to mean growth of 5%-9%.
Greger Johansson, an analyst at independent research firm Redeye, said he won't change his fourth-quarter estimates after the results. He rates the stock sell.
"Carl-Henric Svanberg has done great work since he took over the leadership in 2003. Looking ahead, Ericsson is still an attractive company but there could be some turbulence in the short term," said Claes Ahrel at Laensfoersaekringar, an insurer which owns Ericsson shares.
Svanberg declined to comment when asked whether Ericsson is interested in buying smaller rival Marconi PLC (MRCIY).
He reiterated Ericsson is looking to buy vendors that could enhance its position in next generation networks with Internet-based technologies, or companies with strong systems integration businesses.
"It should be something quite compelling should we do something," Svanberg said.
Company Web site: http://www.ericsson.com
-By Magnus Hansson, Dow Jones Newswires;+46 8 545 130 91, email@example.com (Johan Carlstrom in Stockholm contributed to this item.)
(END) Dow Jones Newswires "
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