First quarter profits boost for Ericsson

(AFP) The Swedish telecommunications giant Ericsson reported on Friday an unexpectedly strong rise in profits in the first quarter, but warned that growth of the mobile phone market would be modest this year.

Ericsson’s net profit came in at 4.6 billion kronor (501 million euros) in the first quarter, against 2.6 billion a year earlier, a rise of 77 percent. Pre-tax profit was 6.7 billion kronor against 3.7 billion earlier, and well ahead of the 5.8 billion forecast from sector analysts in financial markets.

Earnings per share (EPS) were 0.29 kronor, up from 0.16, and sales grew to 31.5 billion kronor from 28.1 billion, against market expectations of 30.3 billion.

Ericsson, which is the biggest supplier of mobile systems in the world, said market growth would level off this year, showing just “slight growth”, after a strong showing in 2004 which benefited from pent-up demand for infrastructure from the world’s big mobile operators.

Share investors in Sweden, where Ericsson is a household stock, had been primed for solid Ericsson results after exceptionally high earnings earlier in the week from Nokia, the world’s leading mobile phone maker, and its American rival, Motorola.

But analysts were still surprised at the strength of the Swedish performance, especially a record gross margin of 48.5 percent, and recommended Ericsson as a profitable buy.

In early Stockholm trading, Ericsson’s stock stood 5.30 percent higher at 21.80 kronor.

“The gross margin is much better than most people had expected,” said Greg Johansson, Ericsson analyst at Nordea.

After 2004, considered “a lucky year” for Ericsson, margins were believed to have peaked, but “in fact they rose and were some four percent higher” than market expectations, he said.

Ericsson’s chief executive, Carl-Henric Svanberg, said the margin growth was explained by a favourable product mix, but also by further efforts to cut costs.