Ericsson quarterly profit surges on mobile broadband demand

By @ibtimes on

Telecoms gear maker Ericsson blasted past first-quarter core profit expectations thanks to surging mobile broadband sales but said it would take until the third quarter to resolve Japan quake supply problems.

Ericsson's shares jumped more than 10 percent to their highest since last July, as sales soared on the back of a recovering tech gear market and cost cuts offset currency headwinds and margin pressure from competition.

Ericsson said growth had been particularly strong in the United States, India, Japan, Korea, Russia and China.

The only area of concern was the effect of March's earthquake in Japan. While it had no impact on the first quarter, Ericsson said it would be toward the end of September before supply chain problems had been fully dealt with.

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.

Ericsson's shares were up 10.1 percent to 88.60 crowns at 1326 GMT, easily outpacing a slight rise in both the Stockholm blue-chip market and European tech stocks.

The company said it had taken measures to meet a component shortage following March's earthquake in Japan but there would be some impact.

We have done a lot of mitigating actions -- everything from redesign, second source, even buying from spot markets, CEO Hans Vestberg said. However, our best estimate right now is that certain products will have a delay. We believe that ... by the end of the third quarter we will be back to normal.

He would not say which products were affected nor what the impact on the coming quarters would be.

Nokia, 50 percent parent to Ericsson rival Nokia Siemens Networks said last week it expected the worst effects from supply chain problems in the second quarter.

After slumping in the global downturn, the tech gear market began to pick up in the second half of last year as operators boosted spending to meet skyrocketing data traffic from smartphones, tablet computers and mobile Internet users.

For Ericsson, growth accelerated in the first three months of 2011 with sales up 35 percent at Ericsson's key network unit.

The firm said mobile broadband growth was now compensating for the long-term decline in technology for voice services.

Volume effects, a favorable business mix and efficiency gains helped boost the margins in networks -- which accounted for more than 60 percent of sales in the quarter. This helped keep the group's gross margin flat at 38.5 percent against an analysts' expectation of a slight decline.

The company said that the strong trend in mobile broadband would continue, but Vestberg declined to be drawn on whether the gross margin was at a sustainable level, given increasing proportions of less profitable business, such as modernization in Europe and 3G roll-out in India.

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 a forecast of 5.0 billion. Group sales were 53 billion crowns, versus a forecast of 49 billion in a Reuters poll.

Prospects look encouraging too.

While Ericsson does not give guidance, its 2011 executive bonus plan has targets of 4-10 percent annual net sales growth and 5-15 percent in operating income up to 2013.

(Additional reporting by Sandra Jansson, Tarmo Virki, Adam Cox, Olof Swahnberg, Christofer Jungstedt, Johan Ahlander and Elinor Schang)

($1=6.102 Swedish Crown)

(Editing by Louise Heavens, Erica Billingham and Jane Merriman)

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