SHENZHEN, China – Ericsson reported first quarter revenues of $7.6 billion, a 4% decline year-over-year from the same period last year. The company also recorded net income of $1.31 billion driven largely on the strength of the proceeds from its divestiture of its Sony Ericsson handset venture.
In its release, Ericsson indicated that sales in support of mobile broadband build-outs in North America, Japan and Korea stood out. Growth in these markets dovetail with comments made today by Huawei at its Global Analyst Summit that these three markets are expected to be strong growth arenas – and thus, hotly contested battlegrounds – over the next year. If so, then the Q1 momentum, particularly in the form of its recent LTE contact with AT&T Mobility, bodes well for the Swedish vendor both in terms of opportunity for equipment and professional services sales.
In terms of answers as to why sales slipped this quarter compared to Q1 2011. Jan Frykhammar, EVP and CFO at Ericsson told RCR Wireless News that the past quarters sales mix, which was weighted more heavily towards lower margin radio coverage projects as opposed to higher margin capacity build-outs had an impact on top line results. So did the structural decline of CDMA sales to North American operators as they begin to look towards ramping up LTE roll-outs. He went on to share that this is a point in the capacity vs. coverage deployment cycle that Ericsson predicted would take place starting roughly in the second half of last year
Also, in highlighting that operators are looking more aggressively at LTE roll-outs at the expense of continued CDMA deployments, Frykhammar tacitly acknowledged that the future sales opportunities resulting from Ericsson’s acquisition of Nortel’s CDMA business could be on the decline. While relevant IPR and the ability to convert existing contracts into higher value LTE contracts certainly bring value to the Nortel acquisition, it nevertheless, indicates that this could be Ericsson’s second attempt at selling CDMA equipment to lackluster results.
Finally, inline with recent trends, the vendor’s managed and professional services organization represented 40.4% of Ericsson’s sales mix this quarter. As LTE deployments ramp up globally, and Ericsson begins to mine services opportunities related to its Telcordia acquisition, expect services to constitute an increasing percentage of Ericsson’s business over the short- and long-run.
