World No.1 mobile gear maker Ericsson saw its profit halve in the fourth quarter as the global economic slowdown hit demand for new equipment, and forecast network operators would remain cautious on spending in the months ahead.
Telecoms operators invested heavily through most of 2011 to upgrade networks to cope with surging data traffic from smartphones and tablets, but a slowdown had been expected, particularly in the United States.
Ericsson said on Wednesday it had seen some increased caution from operators in the fourth quarter due to weak macroeconomic conditions which hit its key network unit, where sales fell 9 percent year-on-year.
The effects were most felt in the United States and Russia.
At the same time, the impact of lower margin contracts in Europe continued to press on Ericsson's profitability.
Short-term, we expect operators to continue to be cautious with spending, reflecting factors such as macro economic and political uncertainty, said Ericsson chief executive Hans Vestberg.
We will continue to execute on our strategy which means that the business mix, with more coverage and network modernization projects than capacity projects, will prevail short-term.
Earnings before interest and tax, excluding the company's loss-making joint ventures but including restructuring charges, were 4.1 billion Swedish crowns (387 million pounds), missing all forecasts in a Reuters poll, which ranged from 5.8 billion to 9.4 billion.
Sales, at 63.7 billion crowns, were also well below the forecast of 67.2 billion, as was Ericsson's closely watched gross margin which came in at 30.2 percent against the projected 33.7 percent.
It is hard to find anything positive in the report, said Robert Jakobsen, analyst at Jyske Bank. The company has indicated there would be a slowdown, but this is much worse than expected.
Although core profit missed even the lowest forecast in the poll, the worsening situation is not a complete surprise.
Ericsson had said previously that operators were becoming more cautious and flagged it had sacrificed short-term profitability for market share and long-term gains.
Some smaller equipment vendors, such as Juniper Networks Inc and Acme Packet Inc, have also issued profit warnings in recent weeks, blaming slower spending at big U.S. carriers like Verizon Communications Inc and AT&T.
($1 = 6.7810 Swedish crowns)
(Additional reporting by Olof Swahnberg, Christopher Jungstedt, Veronica Ek and Johannes Hellstrom; Editing by Mark Potter)