January 25, 2011

Ericsson Expecting Strong 2011 Sales

Ericsson expects strong demand for mobile broadband equipment in 2011 after a surge in fourth-quarter sales for the first time in two years.

Reuters reported today that shares in the company jumped 4 percent to their highest level since September 2010 as sales topped all expectations.

Ericsson has long forecasted that telecom operators would need to invest in networks to support an explosion in data traffic as customers surf the Internet on the go from their iPhone and or Galaxy Tab.

However, the market has been slow to recover from the downturn with operators more focused on cost cuts than spending.

"Maybe people in the market didn't believe growth would return to the sector," Greger Johansson, analyst at Redeye, told Reuters. "They finally showed some growth."

The positive outlook offset worries that the company's gross margin was under pressure from an increase in less profitable business in India and Europe.

"There is still a bit of uncertainty about the gross margin and where the gross margin is going to land in 2011, but what you see is that the company is now witnessing a good return of traction with mobile broadband and growth is back," Pierre Ferragu, analyst at Sandford Bernstein, told Reuters.

Ericsson saw a 7 percent jump for comparable units and excluding currency effects in the fourth quarter.  This was the first increase since the January through March period in 2009.

"We expect the strong uptake for mobile broadband to continue in 2011, with number of mobile broadband subscriptions expected to double and hit one billion already this year," Ericsson Chief Executive Hans Vestberg said in a statement.

Sales totaled $10.4 billion beating all forecasts in the poll.  The company's key Networks unit, its biggest revenue generator, reported sales growth of 14 precut year-on-year.

Ericsson's operating profit excluding joint ventures and restructuring in the seasonally strong quarter was $1.28 billion, against analysts' 8. 

The world's biggest mobile network gear maker said the effects of a component shortage that hit sales in the second and third quarters last year had eased, but its gross margin was hurt by an increasing proportion of network rollout projects like 3G networks in India and modernization work in Europe.

The gross margin slipped to 37 percent from 39 percent in the July through September period and its operating margin stayed the same at 13 percent.

Chief Financial Officer Jan Frykhammer said modernization projects and the 3G rollouts were important platforms for winning future business and that the company would continue to protect margins.

"We work hard with efficiencies and mitigating actions," he said.


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