Swedish wireless equipment maker LM Ericsson AB on Friday reported a 26 percent drop in first-quarter net profits, with worse-than-expected sales and large restructuring costs weighing on the results.
Net profit for the three months ended March 31 came to 1.3 billion kronor ($180 million), down from 1.72 billion kronor a year ago. Restructuring costs, mainly related to Ericsson's costs savings program and excluding joint ventures, totaled 2.2 million kronor in the quarter.
The company launched an extensive savings program in the first quarter of 2009 and said in Friday's report that the scheme is still expected to be completed in the second quarter of this year. It is expected to accumulate 15-16 billion kronor in annual savings at a cost of around 15 billion kronor.
Stockholm-headquartered Ericsson said first-quarter revenues amounted to 45.1 billion kronor, down from 49.6 billion in the same three months in 2009.
Ericsson CEO Hans Vestberg said part of this was due to its Networks unit, an area where operators "in a number of developing markets" have been wary with investments.
This was somewhat offset by its Professional Services unit though, he said, where sales had been good.
Ericsson also said it now estimates global mobile data traffic to have surpassed voice traffic, growing some 280 percent in the past two years.
In its outlook, it said it expects mobile data traffic to double annually over the next five years.
"In markets with strong data traffic uptake, we increasingly discuss with operators how to manage the higher data volumes and how to maintain a good consumer user experience," Vestberg wrote in the earnings statement.
Redeye analyst Greger Johansson in Stockholm called the results "bad."
"Total sales were much worse-than-expected," he said, saying investors are holding onto their money. "The market is tough, it's affected by price pressure and competition."
Despite the profit shortfall, the Ericsson share still climbed more than 5 percent to 84.10 kronor ($11.65) in Stockholm, which Sydbank analyst Morten Imsgard mainly attributed to larger margins reported in Ericsson's key units. "But I think the reaction is a bit too positive," he said of the share movement
On Thursday, the world's top mobile phone maker, Nokia, said profits surged in the first quarter, jumping to euro349 million ($467 million) from euro122 million.
Still, the Finnish company's shares took a beating on the report, plunging 14 percent when the market closed, as analysts had anticipated a better performance and a more upbeat forecast. They also noted signs of increased competition.
With more than 85,000 employees worldwide, Ericsson is one of Sweden's biggest companies and has long been a key global supplier of fixed and mobile phone networks. It is increasingly focusing on providing services, like managing the networks of operators.
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