Telecoms gear maker Ericsson blasted past first-quarter core profit expectations thanks to surging mobile broadband sales and hopes to resolve Japan quake supply problems later this year.
The tech gear market is recovering after a sharp downturn and despite currency headwinds and fierce competition, most of the sales growth has dropped to the bottom line for Ericsson, thanks to cost cuts.
Sales picked up in the second half of last year and took off in the first quarter, up 17 percent overall and rising 35 percent at Ericsson's key network unit.
Ericsson said growth had been particularly strong in the United States, Ericsson biggest market over the last year, India, Japan, Korea, Russia and China.
It was an extremely strong report. The network side is coming through fantastically and the whole of Ericsson is getting (sales) growth of 17 percent now, said Greger Johansson, analyst at Redeye.
Even the gross margin and as a consequence the profit is better than expected. This is definitely going to give the shares some momentum. Up to 85-90 crowns, I would expect, he said before the market opened.
Ericsson shares were up 7.4 percent at 0805 GMT to 86.4 crowns on Wednesday.
Ericsson managed to increase its margin in networks -- which accounted for more than 60 percent of sales in the quarter -- thanks to volume effects, a favorable business mix and efficiency gains.
The strong performance in networks meant that an expected squeeze in the company's gross margin -- which was flat year on year -- failed to materialize.
The world's biggest mobile network gear maker posted earnings before interest and tax excluding joint ventures of 6.3 billion crowns ($1.03 billion) versus an average forecast of 5.0 billion in a Reuters poll.
From the first quarter, Ericsson reports headline profit including restructuring charges.
Group sales were 53 billion crowns, versus a forecast of 49 billion in a Reuters poll.
The increase in Group sales was driven by segment Networks where revenues grew 35 percent year-over-year with an EBITA margin of 20, the company said.
Ericsson said that March's earthquake in Japan had had no impact on the first quarter.
However, it said that it expected delays to the supply of some components, raising worries some concerns about the financial impact in the second quarter impact.
The company said it continued to work on alternatives and said it hoped to have ironed out the problems by the end of the third quarter. ($1=6.102 Swedish Crown) (Editing by Louise Heavens and Erica Billingham)