Ericsson gave an optimistic outlook for 2011 but the Swedish company’s fourth-quarter profit fell short of expectations.
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The world’s leading manufacturer of mobile network equipment on Tuesday reported sales of SKr62.8bn ($9.5bn) for the final three months of 2010, up 8 per cent over the same period in 2009, as Ericsson benefited from rising consumer demand for smartphones and tablet computers.
While Ericsson’s sales exceeded expectations, Ericsson’s closely watched gross profit margin fell short of analysts’ forecasts. The margin was 37 per cent in the fourth quarter, which represented a 2 percentage point decline compared to the previous three months.
Ericsson said the gross margin had come under pressure because of network modernisation projects and the construction of mobile infrastructure based on third generation wireless technology in India.
These new network projects attract a lower margin compared to upgrades of existing infrastructure, but Ericsson stressed they were an important part of the company’s long-term growth and profitability.
Hans Vestberg, Ericsson’s chief executive, said the company expected to see strong demand for mobile broadband in 2011, driven by smartphones and tablets.
He highlighted how the price of smartphones was falling, and also noted how several technology companies were rushing out alternatives to Apple’s iPad.
“Mobile data traffic is forecast to almost double annually over the coming years,” said Mr Vestberg. “We are well positioned to support our customers in meeting the changing consumer behaviour.”
Jan Frykhammar, Ericsson’s finance director, said the company would continue to bear down on costs. Ericsson’s shares rose 2.46 per cent to SKr79.00.
Net income was SKr4.4bn in the fourth quarter, compared to SKr700m in the same period of 2009. Earnings per share rose from SKr0.1 in the fourth quarter of 2009 to SKr1.34 in the last three months of 2010.
Ericsson’s networks unit recorded sales of SKr36.4bn in the fourth quarter, up 14 per cent compared to the same period in 2009.
It underlined how the unit has resumed growth after falling sales in 2009 and the first half of 2010, when mobile operators cut capital spending. because of the downturn
Ericsson has enjoyed strong demand for its products in the US, which is one of the first countries in the world to move from 3G to 4G networks. This infrastructure should enable faster data downloads on smartphones and tablets.
For 2010, Ericsson’s networks unit recorded sales of SKr112.7bn, down 1 per cent compared to 2009.
The Swedish company’s full-year sales were SKr203.3bn, down 2 per cent. Net income was SKr11.2bn in 2010, compared to SKr4.1bn in 2009, with the improvement mainly stemming from lower restructuring charges and a better performance by Sony Ericsson, the handset maker jointly owned by Ericsson and Japan’s Sony.
Ericsson’s board will propose a dividend of SKr2.25 per share for 2010, compared to SKr2 in 2009.
Richard Windsor, technology specialist at Nomura, said Ericsson’s consensus-beating sales were likely to be overshadowed by how its gross margin had fallen short of analysts’ expectations.