Ericsson’s third quarter profits were up from the second quarter, but down significantly from the year-ago period. Chief financial officer Jan Frykhammer says he’s not satisfied, and that ongoing efforts to cut costs and grow Ericsson’s services business will be key to improvement going forward. Ericsson’s third quarter sales were off just 2% from the year-ago quarter, but profit plunged 42%. Net profits for the quarter were $327 million, on revenue of $8.1 billion. The Swedish company’s stock price fell more than 4% Friday morning.
Network infrastructure providers have faced a difficult market worldwide as many carriers delay investment due to economic uncertainty. Ericsson’s largest competitor, Huawei, saw profits fall 22% during the first half of 2012 and Juniper said this week that third quarter profits fell 80% from a year ago, although part of the decline was due to one-time charges.
Frykhammer says some of the downturn is related to the economy and some to the investment cycles at the companies that buy equipment. He says that in the networking business “you must have one part of the world that is investing and one part that is not.” Right now, he sees North America, China and Latin America as the bright spots. “Latin America … will be next to do what North America has done and what South Korea has done with LTE,” he says, adding that Ericsson has more than 50% of the market for LTE in that region.
Ericsson wants to offset the cyclical infrastructure business with its growing network services business. “The services business is developing well basically all over the world,” says Frykhammer, adding that with 69,000 professionals this business represents the bulk of Ericsson’s employee base. Service revenue represented 45% of Ericsson’s sales during the third quarter, up 19% from the year-ago quarter.
Frykhammer says the acquisitions of Telcordia and ConceptWave have given the company a strong OSS/BSS portfolio, and he declined to comment on rumors that Ericsson will buy Nokia Siemens Networks’ BSS unit, saying that “we have a good portfolio today and now the focus is on building skill sets.”
While the company works to hire and train employees with the right skill sets, Frykhammer notes that in some areas job cuts are unavoidable. “We will continue to work on improving profitability … by means of efficiencies and cost reductions,” he says. “It happens every day in our company, and it has been doing that for many years. Every company needs to look for efficiencies every day.”
