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Ericsson shares surge on strong earnings report

Published: 20 Oct 2011 12:21 GMT+02:00
Updated: 20 Oct 2011 12:21 GMT+02:00

Sales in the third quarter jumped 17 percent to 55.5 billion kronor, beating expectations of analysts polled by Dow Jones Newswires of 52.7 billion kronor.

Sales soared by 24 percent when currency effects were excluded, with strong showings in Latin America, Northern Europe and Central Asia, said Ericsson, the world leader in mobile phone network equipment.

The report sent Ericsson's stock soaring on the Stockholm exchange, up 5.50 percent to 69 kronor in midday trading, in an overall market down by 0.35 percent.

The strong figures were driven by "continued strong demand for mobile broadband and well as increased services revenues," Ericsson chief executive Hans Vestberg said.

He noted that the remaining effects of the March earthquake and tsunami in Japan on Ericsson's supply chain had been eliminated.

While the quarterly figures were strong, Ericsson remained cautious in its outlook in light of the global financial and economic crises.

"With economic uncertainties in parts of the world, we cannot exclude somewhat more cautious short-term operator spending," it said.

However, Vestberg told Swedish news agency TT he had seen no effects of the eurozone crisis in his meetings with customers.

"I have met with clients who account for 70 to 75 percent of our income in the past 45 days. It (the crisis) isn't the first subject that has come up," he said, adding that "the main issue with our clients hasn't been financing."

"But we can't exclude that our clients' investments will be affected if the world experiences great uncertainty," he said.

Vestberg said Ericsson's sales had increased on eight of 10 markets.

"Yes, we think we're growing faster than the market," he told reporters at a press conference.

Sales in North America were however down by six percent from the same quarter a year earlier, a decline Vestberg attributed to "structural changes" among operators.

He said operators were holding off on investments following a wave of consolidations, and many were now switching from 3G to 4G technology.

The decline contributed to a drop in the company's gross margin, falling from 37.8 percent in the second quarter to 35 percent. Analysts had forecast the figure would come in around 37 percent.

The drop is attributed to the fact that Ericsson is selling fewer of its more lucrative products in the US, and replacing aging networks in Europe amid fierce price pressure.

Telecoms analyst Håkan Wranne of Swedbank said the company had nonetheless presented "a strong report."

"Ericsson is a company that's in a very good position on the market," he told TT.

"There have been concerns that we would see a weakening. But what we see in this report is that there is still strong demand and that's important."

Finally, Vestberg reiterated he would not comment on media reports last week that Japan's Sony was looking to buy out Ericsson for full control of their mobile phone joint venture Sony Ericsson.

AFP/The Local (news@thelocal.se)

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