Ericsson Says Telecom Services to Outpace Equipment Sales

Ericsson AB, the world’s largest maker of mobile-phone networks, said the market for telecommunications services will expand faster than demand for equipment as customers demand better performance from devices.

The market for telecommunications hardware will grow by an average 3 percent to 5 percent a year through 2015 as smartphone use increases, with services expanding 5 percent to 7 percent industrywide and the market for support solutions rising 9 percent to 11 percent, Stockholm-based Ericsson said in a statement today.

“This development will naturally imply a future business mix for Ericsson with more recurring software and services revenues,” Chief Executive Officer Hans Vestberg said in the statement. “However, hardware will always be part of the mix and a key differentiator for Ericsson.”

Wireless carriers are cutting back on network investments as a slowing economy and competition hurt subscriber growth. To offset the slower demand and rivalry from Huawei Technologies Co. and Nokia Siemens Networks, Ericsson is trying to sell more services such as network management and maintenance.

Third-quarter net income fell 43 percent to 2.18 billion kronor ($325 million), Ericsson said Oct. 26. The gross margin, or proportion of sales remaining after production costs, slid to 30.4 percent from 35 percent, missing the 32.2 percent average of analysts’ estimates compiled by Bloomberg.

Vestberg is at an investor presentation today in Stockholm, where he plans to outline a list of goals for achieving compound operating-profit growth of 5 percent to 15 percent as required in the executive performance stock plan.

Ericsson rose as much as 0.9 percent to 59.9 kronor and was trading up 0.1 percent at 9:33 a.m. in Stockholm. The shares have declined 16 percent this year, valuing the equipment maker at 196 billion kronor.

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