Ericsson Soars After Sales, Profit Margin Beat Estimates

Ericsson AB (ERICB), the world’s largest maker of wireless networks, jumped the most in almost two years in Stockholm trading after sales beat estimates amid rising spending by North American wireless operators.

Revenue rose 5 percent to 66.9 billion kronor ($10.5 billion), Stockholm-based Ericsson said today in a statement. Analysts predicted 65.8 billion kronor, the average of 23 estimates compiled by Bloomberg. The net loss was the biggest in a decade because of one-time costs.

Sales expanded at the fastest pace in more than a year, led by a 51 percent jump in North America as the popularity of data- hungry tablets and smartphones prompts wireless operators to invest in networks. Ericsson’s gross-profit margin also beat estimates and the company said more lucrative projects to boost network capacity will account for more of its business starting in the second half.

“The report was very good,” said Erik Paulsson, an analyst at Pareto Securities ASA in Stockholm. “The big positive is the improving underlying business mix later this year. This will help lift gross margins further.”

Ericsson jumped 7.6 percent to 74 kronor in Stockholm, the biggest advance since April 2011. The stock has climbed 14 percent this year after falling 7.5 percent in 2012.

U.S. Market

Operators are adding capacity and expanding coverage as consumers increasingly use mobile devices to browse the Web and watch video clips. AT&T Inc., the largest U.S. phone company, had capital expenditures of $19.7 billion last year and said on Nov. 7 that it would invest $14 billion to build more high-speed Internet connections over wires and wireless systems.

Ericsson’s sales in North America jumped to 17 billion kronor last quarter. Revenue in Latin America, northern Europe and central Asia, the Mediterranean region as well as China and northeast Asia declined. Sales in western and central Europe advanced 3 percent.

North America is a haven for Ericsson because faster- growing rival Huawei Technologies Co. is facing political headwinds in the region. The U.S. House Intelligence Committee in October recommended that local companies avoid equipment made by Huawei, whose founder served in the Chinese military, citing concerns the communist nation could install malicious hardware or software in U.S. networks.

The Chinese company’s revenue topped Ericsson’s for the first time last year, and it projects that sales will grow as much as 12 percent this year after an 8 percent gain in 2012.

Margin Boost

Ericsson said its gross margin in the quarter, or sales minus production costs, widened to 31.1 percent, beating the 30.7 percent analysts estimated.

Network-modernization deals in Europe, which demand more labor hours and are often less profitable, led to Ericsson’s fourth-quarter gross margin plunging to 30.2 percent in 2011, the lowest level since at least 1989. Ericsson said today business will probably “gradually shift towards more capacity projects” in the second half of 2013.

“Improving profitability, reducing costs and working capital remain high on the agenda also for 2013,” Chief Executive Officer Hans Vestberg said in the statement. “While the macroeconomic and political uncertainty continues in certain regions, the long-term fundamentals in the industry remain attractive.”

Ericsson said in November that it will cut 1,550 positions in Sweden to boost profit. Nokia Siemens Networks and France’s Alcatel-Lucent SA have also cut jobs to reduce expenses.

Ericsson is also trying to sell more services such as network management and maintenance to increase profitability.

Venture’s Future

The net loss was 6.46 billion kronor after Ericsson recorded an expense of 8 billion kronor for writing off the value of its wireless-chip alliance with STMicroelectronics NV (STM) as it considers all options including shutting the venture down. ST-Ericsson said yesterday its fourth-quarter operating loss narrowed to $169 million as sales dropped 12 percent, and STMicroelectronics said it will need as much as $500 million in funding this year to restructure and divest its stake.

“We are now pursuing all other options on how to take this joint venture forward,” Ericsson’s Vestberg said today in an interview. “It’s a shareholders’ agreement where we need to mutually agree to any decisions. We are in those discussions, but have not concluded anything.”

Ericsson is recommending an increase in the dividend this year to 2.75 kronor a share from 2.5 kronor a year earlier.

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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