STOCKHOLM -(Dow Jones)- Swedish telecommunications equipment manufacturer Telefon AB LM Ericsson (ERICY) Friday posted a third-quarter pretax profit of SEK7.0 billion, up strongly on SEK1.1 billion a year earlier.
Net profit for the three months was SEK4.8 million against a year-ago loss of SEK3.9 billion, while sales for the period rose to SEK31.8 billion from SEK28.0 billion.
Ericsson said orders booked in the quarter amounted to SEK29 billion, up from SEK28.1 billion in the same three months last year.
The third-quarter gross margin was 47.1% versus 35.9% in 2003, and the operating margin was 22.7% against 5.2%.
Ericsson noted that its operating margin and its pretax profit in the year-ago quarter have been adjusted for restructuring charges of some SEK5.4 billion.
Ericsson said that while its sales for the quarter were up some 14% year-on-year, they were down sequentially mainly due to seasonality but also the gradually abating effect of operators' catch up spending. Orders booked were also down quarter-on-quarter.
Currency exchange effects negatively impacted sales by 6% year-over-year.
Cash flow before financing was SEK5.2 billion versus SEK9.1 billion last year and SEK4.3 billion the previous quarter. Work in progress has increased due to higher business activities, and the company said its financial position improved, with net cash of SEK36.8 billion compared with SEK20.5 billion in the same quarter of 2003.
Ericsson said underlying growth drivers remain solid. Voice and data traffic is increasing steadily as a result of new services as well as the introduction of more efficient technology. Revenue growth via new services and increased usage is in focus for operators. Net subscriber additions continue at a high level.
Europe continues to show strong development as a result of continued 3G roll out and GSM capacity enhancements. Spending on WCDMA radio networks is quickly catching up with GSM in Western Europe. Operators' more aggressive tariffing strategies add to the market dynamic. In Russia, Central Europe, Middle East and Africa the activity level is high with several new networks being rolled out and strong subscriber growth.
The Asia Pacific region continues to develop well with increasing usage and subscriber growth. Minutes of use per mobile subscriber are increasing steadily with India and China presently showing double the European levels. Japan is in the lead in 3G deployments and is experiencing strong subscriber take up and dramatic increases in data usage.
The North American market continues to show healthy development with increasing focus on quality of service. The Cingular/AWS merger regulatory process continues to affect the market. Latin America, where operator consolidation has taken place, now shows strong growth. The development is particularly encouraging in Brazil and Mexico with improving GSM coverage and capacity expansions.
Ericsson said that during the quarter, nine new WCDMA networks were commercially launched, reaching a total of 45. During the quarter the number of WCDMA subscriptions grew to more than 10 million from about 7 million. The number of CDMA2000 1xEV-DO subscriptions has now reached more than 9 million.
Ericsson said that the traffic growth in the world's mobile networks should generate a slight to moderate growth in the global mobile systems market 2004.
In addition to this underlying growth, there is an effect from operators catching up on previous years' limited investments. This effect has started to abate and Ericsson said it expects the market to gradually return to a more normal growth pattern.
The temporary catch up effect inflates the total mobile systems market growth in 2004. Therefore, compared to total growth in 2004, the company expects the global market for mobile systems to show slight growth in 2005. Excluding this catch up effect in 2004, it estimates a moderate underlying market growth in 2005.
"We maintain our view that the addressable market for professional services is expected to continue to show good growth," Ericsson added.
All of the company's estimates are measured in U.S. dollars and refer to market growth compared with last year.
"With our technology leadership and global presence, we are well positioned to take advantage of these market opportunities," Ericsson said.
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Posted to the site on 22nd October 2004
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