Ericsson Reports Q1

Sunday, 25 April 2010 13:28

STOCKHOLM -- CEO comments "Group sales in the quarter declined -9% year-over-year with lower sales in Networks but with an increase in Global Services," says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC). "Sales for comparable units, adjusted for currency exchange rate effects and hedging declined year-over-year -16%. Voice related sales, such as 2G, continued to decline in the quarter but were partly offset by increased 3G sales. Sales were also impacted by tight industry component supply conditions. Gross margin improved, positively affected by business mix and continued efficiency gains. Cash flow improved year-over-year. The work to regain profitability in our joint ventures is on track and Sony Ericsson shows improved results year-over-year. The market conditions we saw in the second half of 2009 prevailed also in this quarter with mixed operator investment behavior across regions and markets. Operators in a number of developing markets were still cautious with their investments which impacted Networks' sales while Professional Services sales were good also this quarter. During the quarter, the mobile data traffic increase continued, mainly in North America and Western Europe, driven by increased consumer usage of smartphones and other devices. We forecast that mobile data traffic will double annually over the next five years. In markets with strong data traffic uptake, we increasingly discuss with operators how to manage the higher data volumes and how to maintain a good consumer user experience. The 16 managed services contracts signed during the quarter reflect increased operator focus on network quality and efficiency. We also continued to strengthen our position in North America with the important 4G/LTE agreement with AT&T. With a clear roadmap for CDMA, customers show confidence in our broadened offering. The acquired CDMA business developed favorably during the quarter," concludes Hans Vestberg. Financial highlights Income statement and cash flow Sales in the quarter were down -9% year-over-year and -23% sequentially. Sales for comparable units, adjusted for currency exchange rate effects and hedging, declined -16% year-over-year. The net impact of currency exchange rate effects and hedging was limited. During the quarter, operators in a number of developing markets were still cautious with investments which impacted sales, primarily in Networks. This was partly offset by continued good services sales. Gross margin, excluding restructuring, improved year-over-year to 39% (36%) due to efficiency gains and product mix. Sequentially, the gross margin improved from 35% for the same reasons. Operating expenses were reduced to SEK 13.1 (13.6) b., excluding restructuring charges. This includes operating expenses from the acquired CDMA business. The year-over-year decline is primarily a result of ongoing cost reduction activities. Other operating income and expenses were SEK 0.3 (0.3) b. in the quarter. Operating income, excluding joint ventures and restructuring charges, amounted to SEK 4.5 (4.7) b., including positive contribution from the acquired CDMA business. Operating margin was stable at 10% (10%) in the quarter, despite lower year-over-year sales, but declined sequentially as a result of seasonally lower sales. Ericsson's share in earnings of joint ventures, before tax, amounted to SEK -0.3 (-2.2) b. excluding restructuring charges, compared to SEK -0.4 b. in the fourth quarter. Sequentially, Sony Ericsson improved sales and margins significantly due to efficiency programs and new products, while ST-Ericsson's loss increased mainly due to lower sales and seasonality. Restructuring charges in joint ventures were SEK 0.1 b in the quarter. Financial net was SEK -0.2 (0.8) b., mainly due to low interest rates and negative currency revaluation effects on financial assets and liabilities. Net income amounted to SEK 1.3 (1.8) b. and earnings per share were SEK 0.39 (0.54). Adjusted cash flow improved to SEK 3.0 (-1.7) b. in the quarter, down sequentially from SEK 13.6 b. However, cash flow from operations improved year-over-year due to focus on capital efficiency. Cash flow in the quarter was negatively affected by an employer contribution to pension trusts of SEK 0.9 (1.5) b. Ericsson AB