Ericsson toasts profit rise

Swedish telecommunications giant Ericsson, the world's biggest supplier of mobile telephone systems, reported on Thursday a rise in second-quarter earnings amid a global recovery of demand for telephone networks.

Net profit increased to 5.8 billion kronor for the three months to June 30, against 5.0 billion a year earlier.

Sales rose to 38.4 billion kronor from 32.6 billion and earnings per share to 0.37 kronor from 0.31.

Chief executive Carl-Henric Svanberg said that the quarterly performance, which outstripped financial analysts’ forecasts, had been “robust”.

Swedish market forecasters had expected on average a sales figure of 35.1 billion kronor.

Pre-tax profit, which analysts had forecast at about 7.6 billion kronor, amounted to 8.5 billion kronor, up from 7.3 billion kronor 12 months ago.

Among factors affecting results, an accelerating rollout of third-generation mobile phone networks in North America boosted sales and profits.

Some revenues came in earlier than planned, and Ericsson acknowledged that two billion kronor of turnover from equipment sales in North America earmarked for the third quarter had actually been booked in the second.

In emerging markets Ericsson benefited from demand for older, second-generation GSM technology, either to create new networks or update existing infrastructure, Svanberg said.

In Western Europe, where the mobile phone sector has been marked by cut-throat competition and price wars, Ericsson had developed its services business, helping operators to cut costs where possible, he said.

Investors bought into Ericsson’s shares after the surprisingly strong performance, pushing them 2.7 percent higher to 26.90 kronor in late trading on the Stockholm stock exchange.

“The figures are much higher than we and the market had expected because of much better-than-forecast sales growth which has been accelerating since the start of the year,” said Laurent Balcon, analyst at Global Equities.

In their praise, analysts focused on the sales performance, although some said profit margins had not been quite as impressive.

In Stockholm, analyst Greg Johansson at Redeye told AFP’s financial newswire AFX News that his initial enthusiasm for the report was tempered by its weaker margins and the transfer of the two billion kronor from the third to the second quarter.

“At first I thought it was a great report, then when you look at the figures a bit more closely you realise it’s not all good,” Johansson said.

In an apparent upgrading of its view on future developments in the world’s networks market, Ericsson said market growth, which had previously been seen as “slight”, would now be “moderate” in 2005.

This subtle distinction drew some light-hearted comment in the markets, with Balcon calling it “almost outrageously cautious”.

“When ‘moderate’ means a rise of nearly 20 percent, we are becoming somewhat euphemistic,” he said.

Shares in France’s Alcatel, Europe’s leading competitor to Ericsson in the networks market, also rose as the Scandinavian earnings news delighted Paris stock investors, who pushed Alcatel stock 1.9 percent higher to 10.09 euros.

The Ericsson earnings came only hours ahead of a second-quarter earnings report by Nokia of Finland, the world’s biggest producer of mobile handsets.

Nokia’s results had been expected to confirm that world’s mobile phone industry is on the upswing, but in the event its earnings per share came in below market expectations, causing its share price to slump by more than ten percent on the Helsinki stock exchange.