Ericsson Posts Jump in Profits on Back of Samsung Patent Settlement
Published on: 30th Jan 2014
By: Ian Mansfield
Ericsson has posted flat revenues for the fourth quarter of last year although it turned around a deep loss last year into a large profit this time.
Mobile broadband deliveries in China increased, while there were lower project activities in North America and Japan. Coverage projects in China and Russia did not fully offset this decrease.
GSM investments in China, CDMA and circuit-switched core continued their structural decline following operators' transition to LTE. CDMA sales declined -57% YoY.
Global Services operating margin improved YoY to 8%, primarily due to higher Network Rollout margins. However, Network Rollout margin continued to be negative in the quarter mainly due to the network modernization projects in Europe.
Sales came in at SEK67 billion, while net profit came in SEK6.4 billion (US$990 million), which was also boosted by SEK3.3 billion from a patent settlement with Samsung announced just a few days ago.
Gross margin increased to 37.1% (from 31.1%), due to the Samsung agreement, reduced negative effect from network modernization projects in Europe and continued business mix improvements.
Networks sales continued to decline QoQ as a result of the two large mobile broadband coverage projects which peaked in first half of 2013. However, business fundamentals remain positive. Increased smartphone penetration, mobile broadband consumption and 4G device lineup remain drivers for network expansion. Network evolution has driven strong professional services business.
Networks sales declined for the full year with a strong first half while second half was weaker as a result of the two large mobile broadband coverage projects that peaked in the first half of 2013. While executing on the large rollout projects in the US, Ericsson has also strengthened its professional services position and capabilities. For the full year Global Services accounted for the majority of the region's sales. Latin America
Sales increased in the quarter driven by operator investments in 3G network quality and LTE rollouts. LTE deployments ramped up after a slow start and together with 3G network quality investments drove sales growth for the full year 2013. However, macroeconomic development in mainly Brazil and Mexico continued to slow down during the year.
Northern Europe and Central Asia
Sales growth YoY and QoQ was driven by 2G/3G/4G equipment sales and deployments in Russia. Professional Services developed well following increased network quality focus across the region. Full year sales growth was mainly driven by Networks sales in Russia. Operators continued to show high interest in OSS and BSS.
Western and Central Europe
In the quarter network modernization projects progressed according to plan and LTE deployment to the installed base continued.
The full year sales growth was driven by network modernization projects in several countries and also by a high activity level in managed services. Mediterranean
Modernization projects in France and LTE deployments in Spain offset lower investments in Italy, resulting in stable sales YoY. Sales in 2013 grew, driven by 3G deployments in Northwest Africa and modernization projects.
Sales grew both YoY and QoQ. LTE is being deployed in the region but still represents a small share of Networks sales. There is continued demand for Professional Services, both System Integration and Managed Services, as operators seek network performance quality and operational efficiencies. Political unrest prevails in several countries. Sales for the full year grew, driven by increased investments in mobile broadband.
Operators continue to focus on improving capacity on 2G and 3G networks to improve quality of services. However, sales were negatively impacted by reduced deployment pace in Nigeria and South Africa. Professional services growth is fueled by continued good demand for managed services.
For the full year 2013 sales volumes came from 2G and 3G deployment and managed services, although the deployment pace slowed down in the fourth quarter. Long-term industry fundamentals remain positive as mobile broadband and smartphone penetration is still at low levels. India
Sales grew both YoY and QoQ mainly due to network capacity increases with one recently signed contract. During 2014 uncertainty is expected to remain until spectrum auctions are completed and the presidential election period is concluded.
For the full year 2013, sales were negatively impacted by poor macroeconomic environment and delays in regulatory legislation. Global Services grew largely due to an increase in Managed Services.
North East Asia
Sales declined YoY. Japan continued to be negatively impacted by currency and reduced activity as completion of a major project is getting closer. During the quarter, sales in China improved as a result of deliveries to the ongoing mobile broadband coverage projects, contributing to growth QoQ.
Sales for the full year declined. Japan was negatively impacted by currency and reduced activity. GSM in China structurally declined whilst LTE deployments commenced in the fourth quarter. In Japan, KDDI has selected Ericsson as one of the prime vendors to deploy its LTE system and evolved packet core network.
South East Asia and Oceania
Sales in the region declined YoY as a result of certain major projects which peaked in Australia and Indonesia during the fourth quarter of 2012. Sales grew sequentially in all segments as a result of 3G coverage and capacity projects as well as increased activities in BSS and TV and Media.
Sales grew in 2013 with 3G deployments in Thailand and LTE deployments in Singapore and Australia. In Indonesia major capacity projects were finalized. Smartphone penetration continues to increase from a low level.