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Two Pint Problem Number Nine: the '2 Pint' Team takes its Last Bow as Open Source wins in the Telco Market

Ericsson’s full year results fall short of expectations

Hans Vestberg Ericsson

Hans Vestberg at MWC14 © Ericsson

Ericsson has today reported fourth quarter revenue of €7.3bn, up just one per cent year-on-year. Operating profit also suffered; down 30 per cent to €674m. The story wasn’t much better for the full year either; revenue up just 0.3 per cent to €24.4bn and operating profit down six per cent to €1.8bn.

For the full year 2014, sales across all four (soon to be three) operating units were flat. Networks and Global Services continue to dominate, accounting for 51 per cent and 43 per cent of overall sales respectively. Support Solutions picked up five per cent and the soon to be discontinued Modems less than one per cent.

“In the quarter, strong sales growth in the Middle East, Europe and Asia was offset by a continued decline in North America,” explained Hans Vestberg, President and CEO of Ericsson. “Sales in North America were mainly driven by operator investments in capacity and quality enhancements, although at a slower pace. Business activity slowed further in the quarter as operators remained focused on cash flow optimisation in order to finance major acquisitions and spectrum auctions.”

The prospects for a turnaround in North America don’t look promising in the short term, as Vestberg added: “Consumer demand and mobile data traffic growth continues to be strong in North America. However, we anticipate the North American mobile broadband business to remain slow.”

Trying to look towards the positives, Vestberg turned to Ericsson’s continuing research and development work. “The more than 100 IPR licensing agreements signed to date show the value of our R&D investments and enable industry players to continue to innovate and bring exciting products to the market,” he said. “In 2014, IPR revenues showed a steady positive development. We remain committed to licensing our standard-essential patents on FRAND terms.”

Meanwhile, he is committed to a SEK 9bn cost reduction programme, to take full effect during 2017.

Looking at the Networks division, the company says its VoLTE solution continued to gain momentum across regions, with two customers in Japan launching commercial VoLTE services. It signed 12 new contracts during the quarter, of which two were for fixed networks. In Global Services, Ericsson said that 17 new managed services contracts were signed in Q4, including a pan-India contract with Reliance Communications, plus there were 22 new contracts for its Consulting and Systems Integration services.

No specific news for its Support Services division, other than it is seeing a demand from customers for end-to-end OSS and BSS solutions, and that it hopes to attract more business from the broadcast sector, especially for its cloud-based TV platform.

In terms of regions, North America continues to be its biggest contributor to sales, despite the documented market problems. The region accounted for 24 per cent of its annual sales – although this fell to 19 per cent in Q4. North East Asia accounted for 12 per cent of sales, with Western and Central Europe at nine per cent.

Q4 revenue was less than analysts were expecting, as they were optimistically hoping for a 4.5 per cent increase. They also wanted to see Q4 net profit of €488m, whereas the company only managed €449m. Shares fell 2.6 per cent on the news.

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