Listen to this article
Ericsson, the world’s largest manufacturer of mobile phone networks, said it expected only “moderate growth” this year as it reported strong fourth-quarter earnings.
Sales in the three months to the end of December rose 16 per cent to SKr45.7bn ($6bn), against SKr39.4bn for the same period in 2004.
A weak performance in western Europe, where sales fell 4 per cent in the fourth quarter, was offset by strength in the rest of the world.
Fourth-quarter net income rose to SKr8.5bn from SKr5.6bn. But pricing pressure on new contracts contributed to a fall in gross margins from 45.6 to 44.4 per cent in the quarter. Full-year revenues rose 15 per cent to SKr152bn, while net income jumped 39 per cent to SKr24.3bn.
Strong demand for second-generation GSM technology helped drive sales growth in Africa, the Middle East and Latin America, while delivery of 3G networks, including the first upgrades to speeds of about 1Mb, helped lift the performance in North America. Asia also saw growth but was held back by China, where there was less demand as the government geared up for the roll-out of 3G networks, expected to start this year.
Ericsson said consolidation and intense price competition among mobile phone operators was to blame for a 4 per cent decline in fourth-quarter sales in western Europe, its biggest market. But it insisted the reduction in the number of operators and increase in traffic would eventually lift demand for equipment and managed services in the medium term.
Ericsson is increasingly focusing on building its services business, with an increasing number of operators choosing to outsource the management and running of entire networks as they seek to cut costs.
Carl-Henric Svanberg, Ericsson chief executive, said the consolidation in western Europe would lead to “a softer period [for demand] for the next year or so.”
Mr Svanberg expected revenue growth in 2006 to fall at the higher end of the 6 to 9 per cent range.
He rejected analysts’ claims that the strong performance in 2005 would start to weigh on the shares as the company failed to beat that performance this year.
Mr Svanberg said he expected the long-awaited decision by the Chinese government on 3G licences in the first half of 2006. He said he had “quite good hopes” that Ericsson could hold onto its market share in China of around 30 per cent because industry consolidation has removed a number of competitors who were there during the 2G network build out.
But he admitted there would be intense pressure on pricing to win the contracts. Recent contracts in India, which Mr Svanberg described as “the next China”, have seen equipment prices drop by 10 to 15 per cent.
Get alerts on Telecoms when a new story is published