Eight billion kronor Ericsson profit fails to impress

Ericsson, the world's biggest supplier of mobile telecommunication systems, reported on Friday third-quarter earnings slightly ahead of forecasts, but warned that the world systems market would show only moderate growth this year and next.

The Swedish company booked a net profit of 5.3 billion kronor for the three months to September, up from 4.3 billion the same period a year earlier.

Pre-tax profit was 8.0 billion kronor, compared with financial market expectations of 7.9 billion, and a 6.4 billion profit a year earlier.

“The market continues to show good development with growth in mobile voice and data, broadband and in emerging markets in general,” Chief executive Carl-Henric Svanberg said. “We continue to outpace the market.”

There was a “steady increase” in both subscribers and usage in the third quarter, Ericsson said.

“Emerging markets are the prime drivers for this subscriber growth,” it said, adding that in mature markets, growth was driven primarily by “new and richer services”.

Sales in Western Europe were flat year-on-year, while Eastern Europe, the Middle East and Africa grew by eight percent.

Sales in the Asia Pacific region grew by 20% overall, but they dropped in China.

“It has been a bit of an in-between year in China. The operators are waiting to roll out their 3G networks, but subscriber growth is strong,” Svanberg said.

Looking ahead, Ericsson said it expected no more than “moderate” growth in the global mobile systems market in 2005 and 2006.

Investors said they were satisfied overall with the report, but were concerned about Ericsson’s gross margin which fell to 45.2% of sales from 47.1% 12 months earlier.

Ericsson said that the decline was due to higher systems rollout, which requires high upfront investment, and a rising contribution to sales from services, where margins are weak.

“The problem is that Ericsson is forecasting very healthy growth for its professional services business going forward, and if this is the case then the gross margin is going to be further pressured downwards,” one Stockholm-based analyst told AFP’s financial newswire, AFX News.

After opening substantially lower on the Stockholm stock exchange, Ericsson’s shares recovered somewhat to trade 0.38% lower at 26.50 kronor.