Listen to this article
Ericsson, the world’s largest telecommunications equipment company, on Friday reported a 8 per cent increase in operating profit last year to SKr35.8bn ($5.1bn, €4bn).
Closely watched operating margins at the Swedish company dropped slightly from 21.8 per cent in 2005 to 20.1 per cent last year, but stabilised in the fourth quarter at 22.7 per cent, the same as the comparable period last year.
“Our financial strength has enabled us to execute our strategy of organic growth and own development in combination with bolt-on acquisitions,” said Carl Henric Svanberg, chief executive.
During 2006, Ericsson completed the integration of Marconi, the UK telecoms equipment maker acquired for $2bn in 2005, and announced that the company had reached its expected level of profitability.
It also acquired Redback Networks, the US internet protocol firm, for $2.1bn.
Ericsson said net sales rose 17 per cent to SKr177.8bn. Net income rose to SKr26.3bn from SKr24.3bn and earnings per share from SKr1.53 to SKr1.65.
The company proposed a dividend of SKr0.5 a share compared to SKr.45 in 2005.
The most significant strategic development last year was the acquisition of Redback, a maker of broadband network routers. The purchase accelerates Ericsson’s ability to provide internet protocol (IP) technology, which allows for the delivery of telephone calls, television and broadband services via the internet.
These services are becoming increasingly popular as operators offer customers so-called “triple play” packages that involve access to telephone, TV and broadband services in one subscription.
Existing traffic is delivered over four networks – wireless, wireline, data/IP and TV – but will converge into one all-IP network in future.
According to Ericsson, traffic on fixed networks will be driven by internet usage and IP television and is expected to grow from a combined 25,000 petabytes today to over 250,000 in 2011. (One petabyte is equivalent to 1m gigabytes.)
The market for broadband network routers is dominated by Cisco Systems of the US. Ericsson’s acquisition will allow Redback to compete more aggressively with Cisco as it gains access to the Swedish company’s global operations.
Independent analysis indicates Redback has a share of around 6 per cent of the worldwide market for edge routers, far below Cisco with 51 per cent, and Alcatel-Lucent and Juniper Networks, which are both in the mid-teens.
The total market for this type of equipment is around $4.1bn this year but forecast to grow to $5.8bn by 2009.
The deal formed part of the ongoing consolidation of the network equipment industry following the merger of Alcatel and Lucent and the proposed merger of the equipment units of Finland’s Nokia and Siemens of Germany.