Technology
Ericsson: Now The Downturn Hurts
Lionel Laurent, 07.24.09, 08:20 AM EDT
CEO blames currency volatility, but customers are also suffering from weaker voice revenues.
LM Ericsson Telephone Company
07/24/2009 3:31PM ET
* $9.61
* -$0.81
* -7.77%
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STMicroelectronics NV
07/24/2009 3:37PM ET
* $7.72
* -$0.06
* -0.77%
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Sony Corporation
07/24/2009 3:37PM ET
* $25.40
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LONDON -- Back in January, LM Ericsson's ebullient chief executive, Carl-Henric Svanberg, said that the impact of the economic slowdown--all too apparent for most households and investors--had yet to be felt at the network supplier. But he warned that it would be "unreasonable" to think this would last throughout 2009. And on Friday, when the company unveiled its second-quarter results, his prediction came true.
Ericsson ( ERIC - news - people ) said that its quarterly profits had fallen 60% over the year, to 800 million Swedish kronor ($107.2 million), largely down to restructuring charges and losses at joint ventures with Sony ( SNE - news - people ) and STMicroelectronics ( STM - news - people ). But the company's core business of supplying and maintaining telecommunications networks was also affected: Sales of networks were down over the year, excluding currency volatility, and Ericsson's gross margin slipped to 36.3%, from 37%, excluding restructuring charges.
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The sales stagnation was not "alarming," according to Lars Soderfjell, an analyst with Alandsbanken, but he said that it was part of a wider trend of slowing voice revenues for Ericsson's operator customers. "Operators do not have to spend as much as in previous years on voice networks, on GSM [a widely used mobile phone network standard]," he said, adding that incremental growth in voice traffic had turned negative for operators like China Mobile.
Ericsson 'B' shares plunged 6.5%, to 72.50 Swedish kronor ($9.72), during afternoon trading in Stockholm. The company's network margins were particularly disappointing, according to Soderfjell, given that Ericsson had managed to significantly cut down losses from currency hedges.
Ericsson's Svanberg, who will become chairman of BP ( VOD - news - people ) next year, told Forbes that underlying industry trends in traffic and consumer demand were still strong, and that operator spending had only been limited by currency volatility. "When an operator sees his currency drop, he can only afford to buy less," said Svanberg, referring to weakness from emerging-market operators.
British network operator Vodafone ( VOD - news - people ) said on Friday that quarterly voice revenues, stripped of currency volatility and other effects, had fallen 5.6% over the year. Although Asia and the Middle East registered a gain of 10.7%, it was not enough to offset a 4.6% decline in Africa and Central Europe or a fall of 8.8% in the rest of Europe. (See "Vodafone Is Buying Time.") |
