Manufacturer L.M. Ericsson reported a 26 percent increase in net sales for 1996 compared with 1995, but noted the company’s gross profit margin was weakened due to increased competition.
Net income was $1.03 billion for the year, compared with $791.1 million in 1995. Net sales were $18 billion compared with net sales of $14.4 billion in 1995.
The Sweden-based company’s Radio Communications business unit, which includes mobile telephony, showed the greatest increase at 40 percent. The company said demand for digital systems accounted for that growth.
The company adopted a new structure on Jan. 1, and now consists of three business areas: Mobile Phones and Terminals, Mobile Systems and Infocom Systems.
“Ericsson has to become even more profitable if it is to retain its leadership position in the years ahead,” said Lars Ramqvist, Ericsson’s chief executive officer. “Ericsson is growing substantially every year, and this costs money. Larger volumes of business require more working capital, major investments and accordingly, higher earnings.
“We must increase our rate of capital turnover, by continuing our strategy of purchasing certain components and products from other companies, by forming partnerships or, in some cases, by divesting operations,” Ramqvist said.
In 1996, Ericsson sold its On-site paging operations as well as its 67 percent ownership in Svenska Elgrossist AB of Stockholm.
The company’s gross profit margin was weakened not only by increased competition and currency exchange effects, but “continuous consideration has been given in the accounts for increased risks related to changes in technology and markets, and greater financial exposure,” the year-end report stated.
The United States continues to be Ericsson’s largest market, followed by China/Hong Kong, the United Kingdom, Sweden, Italy and Spain. Total exports from Sweden amounted to $10 billion, an increase of 30 percent.
Expenses totaled 33 percent of sales, compared with 34 percent in 1995.
Ramqvist said, “We also know that radical improvements in productivity in manufacturing, distribution and administration means we will be able to supply larger volumes with fewer employees. We must, very simply, become better at meeting the market’s and customers’ needs rapidly, flexibly and competitively in all areas where we are active as a supplier.”
Ramqvist also explained the company’s strategy behind the new business units: “The telecommunications and data communications fields are moving increasingly closer to each other. The same is true of business networks and public telecommunications networks. There is thus a strong demand for total solutions, including radio access systems, as well as for assistance in the construction of networks for fixed-wire systems. The market has clearly signaled that it is time for Ericsson to establish a business area of this type,” Ramqvist said.
“The Infocom Systems name underscores our ambition to be able to provide all the network solutions and products that may be required for multimedia communications.”
Profitability was still weak in 1996 for the Business Networks division, although “the market has shown very strong interest in the business area’s DECT-based radio access system,” the company reported. Digital European Cordless Telecommunications can be used as an in-building wireless system for office environments.
