Ericsson’s full-year trading falls flat

Jan 31, 2013

Q4 sales increased 5 per cent year-on-year, although sales for the full year were flat. Networks sales increased 6 per cent year-on-year during the quarter, to SEK 35.3bn, driven mainly by North America. Global services reported growth of 4 per cent to SEK 28bn and Support Solutions saw 6 per cent growth to SEK 3.6bn. Despite this modest growth across all sectors, Ericsson’s full-year sales were unchanged year-on-year at SEK 227.8bn, thanks to an 11 per cent fall in annual Network sales – partly a result of a 40 per cent decline of CDMA equipment sales.

Quarterly operating margin excluding joint ventures improved to 7.1 per cent from 6.4 per cent in the year ago period, mainly driven by increased Networks sales, although restructuring charges had a negative impact on operating margin of close to minus three percentage points. Full year operating margin was practically unchanged at 9.7 per cent (9.6 per cent in 2011), but if you exclude the gain related to the divestment of Sony Ericsson then the margin falls to 6.4 per cent.

Ericsson reported a quarterly loss for the fourth period of SEK -6.3bn, against a profit in Q4 2011 of 1.5bn, which was mainly attributable to SEK -8.0bn of charges related to ST-Ericsson. For the full year 2012, Ericsson reported a net profit of SEK 5.9bn, which was down 54 per cent from 2011’s SEK 12.6bn. The gains made in the year from the disposal of its share in the Sony Ericsson were almost exactly offset by the loss incurred by the ST-Ericsson.

Hans Vestberg, President and CEO of Ericsson, explained that it 2012 had been “a more challenging year” for its core Networks business, although its Support Solutions and Global Services divisions now account for close to 50 per cent of Group sales, offsetting the drop in infrastructure business:

“During the year profitability was negatively impacted by operating losses in ST-Ericsson, the ongoing network modernisation projects in Europe as well as the underlying business mix, with a higher share of coverage projects than capacity projects. With present visibility of customer demand, and with the current global economic development, underlying business mix is expected to gradually shift towards more capacity projects during the second half of 2013.”

North America was Ericsson’s strongest market, driven by continued mobile broadband investments and demand for services. However, business in South East Asia and Oceania and Sub-Saharan Africa also gradually improved during the year. Turning to next year, Vestberg says:

“Improving profitability, reducing costs and working capital remain high on the agenda also for 2013. While the macroeconomic and political uncertainty continues in certain regions the long-term fundamentals in the industry remain attractive and we are well positioned to continue to support our customers in a transforming ICT market.”

Meanwhile, ST-Ericsson also reported its fourth quarter 2012 financials this morning. The JV of STMicroelectronics and Ericsson reported sales of $358m and an operating loss of $133m. Whilst Ericsson’s Vestberg says that he will “explore various strategic options for ST-Ericsson assets”, Didier Lamouche, President and CEO of the JV, commented:

“We have continued to execute steadily and aggressively on our strategy and delivered on our commitments to improve our financial results, further reducing our losses and controlling expenses. However, we recognize that the level of losses and use of cash remains very high.”

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