Ericsson Earnings Fall Short as U.S. Rebound Stays on Hold

Ericsson CEO Stays Focused on Long-Term Strategy
  • Stock plunges as gross margin, sales trail estimates
  • North American market `remained stable,' Russia, Brazil `weak'

Ericsson AB’s fourth-quarter profitability fell short of analysts’ estimates as network sales in emerging markets such as Russia and Brazil continued to be weak and a rebound in North American mobile broadband spending failed to appear. The stock fell.

The gross margin, the share of sales left after subtracting the cost of production, was 36.6 percent excluding some items, the Stockholm-based network-equipment maker said in a statement Wednesday. Analysts predicted 37.6 percent, the average of estimates compiled by Bloomberg. Profitability slipped as Ericsson sold more lower-margin hardware than lucrative software and despite higher patent revenue and lower restructuring charges.

Sales rose 8 percent to 73.6 billion kronor ($8.6 billion), missing the analysts’ prediction of 74.2 billion kronor. The figures include new patent revenue from Apple Inc. Adjusted for comparable units and currencies, revenue fell 1 percent.

Shares of the Stockholm-based company tumbled as much as 6.9 percent and were down 6.3 percent at 12 p.m. in the Swedish capital. Ericsson has declined by about 22 percent in the past year, giving the company a market value of 254 billion kronor.

“Business trends for the coming quarters look pretty uncertain for the time being as market conditions remain challenging in some parts of the world,” Sebastien Sztabowicz, an analyst at Kepler Cheuvreux with a hold rating on the stock, said in a note. Morgan Stanley’s Francois Meunier said Ericsson’s fourth-quarter revenue was “disappointing” and the gross margin “very low.”

Phone companies have spent billions rolling out speedier fourth-generation wireless networks as smartphone and tablet users consume increasing amount of data. With much of the spending already completed, carriers are investing less. Mobile broadband investments in Ericsson’s key North American market “remained stable,” the company said, while it sold more hardware in the period. Making up about a quarter of its revenue, North American spending from carriers such as Verizon Communications Inc. and AT&T Inc. is crucial.

As wireless-network spending slows, Ericsson is expanding into services as well as TV and media technology. The manufacturer plans to buy Texas-based FYI Television to bolster its broadcast TV offering and bought Envivio for $125 million in September to help expand its TV and video portfolio. Ericsson is also partnering with Cisco Systems Inc. to sell more complete network systems to carriers seeking to cope with the flood of data resulting from the popularity of smartphones, tablets, video streaming and cloud services.

Ericsson’s net income for the three months ended Dec. 31 rose to 7.1 billion kronor from 4.2 billion kronor a year earlier. The board proposed a dividend of 3.7 kronor a share, compared with 3.55 kronor predicted by analysts.

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