Ericsson's Net Increases 22% On Telecom Network Upgrades
By MAGNUS HANSSON of DOW JONES NEWSWIRES
October 21, 2005 12:22 p.m.
STOCKHOLM -- Telefon AB L.M. Ericsson reported 22% growth in its third-quarter net profit as telecommunication operators around the world continued to upgrade and expand their networks, and as Ericsson managed to steal some of its rivals' market share.
Net income rose to 5.31 billion kronor ($672.8 million) in the latest quarter from 4.35 billion kronor a year earlier. Cost controls and lower financial expenses helped bolster earnings, the company said. The latest result was slightly below analysts' forecasts for around 5.49 billion kronor.
Revenue at the Swedish telecom-equipment maker rose 14% to 36.2 billion kronor from 31.8 billion kronor in the third quarter of 2004, and compared with analysts' expectations of 36.1 billion kronor.
Ericsson CEO Carl-Henric Svanberg discusses earnings and his company's growth in emerging markets.The much watched gross margin declined to 45.2% in the quarter from 47.1% a year earlier as sales of services grew at a faster rate than other revenues. Services have a lower gross margin.
"The market continues to show good development with growth in mobile voice and data, broadband and in emerging markets in general," Chief Executive Carl-Henric Svanberg said in a statement.
Richard Windsor, an analyst at Nomura in London, said Ericsson "gained share -- especially we think from Nokia -- but this alone is not enough to prop up growth on increasingly challenging comparisons." He rates the stock a sell.
On Thursday, Nokia said it expects sales at its network-equipment unit to fall in the fourth quarter because it isn't strong in markets where growth is fastest. The Finnish company's networks unit makes about a fifth of group revenues and eked out a 2% increase in the third quarter, bringing in €1.6 billion.
Ericsson -- the world's largest vendor of wireless networks -- has continued to profit from a pickup in spending by its biggest customers. This month, Ericsson has unveiled orders worth around $290 million from two Chinese operators as well as contracts from Movistar Argentina and Poland's Polska Telefonia Cyfrowa.
The company reiterated its outlook for moderate growth in the wireless infrastructure market in 2005, and said the moderate growth, measured in dollars, will continue in 2006.
Bengt Moelleryd, an analyst at Nordea, said he was "a little bit" concerned by the profit margin development, but added the release offered no big surprises. He interprets the company's outlook to mean 5% to 10% growth in 2006 in the wireless networks market. He rates the stock hold.
Shares of Ericsson were down 5.4% at 6.10 kronor apiece in mid-morning trading in Stockholm. |
