Ericsson shares jump on profits boost

Ericsson shares jump on profits boost
Ericsson's IPTV remote screen
Ericsson, the world's biggest mobile network maker, revealed surprisingly strong quarterly net profits on Friday but said it was still grappling with sector-wide component shortages.

The Swedish company reported a net profit surge to 3.68 billion kronor ($553 million) in the third quarter, up from 810 million in the same three-month period last year.

The results beat analyst expectations, which according to a poll by Dow Jones Newswires averaged 3.47 billion kronor.

The company’s sales meanwhile rose for the first time in more than a year, inching up two percent to 47.5 billion kronor, slightly below analysts’ forecasts of 47.7 billion kronor.

The markets rallied after the news, sending Ericsson’s share price up 5.7 percent to 75.95 kronor in early afternoon trading on a slightly negative Stockholm stock exchange.

Analysts at Jyske Bank however described the earnings report as “somewhat mixed.”

“Even though earnings were better than expected, this does not overshadow the difficult market conditions that Ericsson is currently facing,” the bank said in a note.

For while the year-on-year comparison was favourable for Ericsson, whose July-to-September quarter in 2009 was hit by significant restructuring costs and weak sales due to the global financial crisis, it continued to struggle with a sector-wide component shortage.

“A key priority has been to mitigate the effects of industry-wide component shortage and supply chain bottlenecks,” company chief executive Hans Vestberg said in the earnings statement.

“The situation has gradually improved during the quarter but it remains a challenge to fully meet the demand for mobile broadband. While the supply chain bottlenecks have been resolved the industry-wide component shortage remains,” he explained.

Ericsson said its third-quarter sales took a hit of between two and three billion kronor due to the component shortage, compared to a negative impact of between three and four billion kronor in the second quarter.

The Swedish company meanwhile said it had benefited during the quarter from shrinking restructuring costs, improvement in operational results and better sales in its networks division especially.

It was also boosted by the fact that its joint venture mobile phone maker Sony Ericsson returned to profit.

The company’s results were however negatively affected by its new joint venture ST-Ericsson, which makes wireless semiconductors, which posted a net loss of 121 million dollars for the quarter.

The already steep competition facing Ericsson from other Western giants in the sector like French-US Alcatel-Lucent and Finnish-German Nokia Siemens Networks has accelerated in recent years with the entrance onto the scene by Chinese groups Huawei and ZTE.

On Thursday, the world’s leading mobile phone maker Nokia, in neighbouring Finland, announced strong third quarter results and said its joint venture Nokia Siemens had seen its operational loss for the period shrink to €282 million from 1.1 billion in the red a year ago.

Nokia Siemens, one of Ericsson’s fiercest competitors in the telecom equipment sector, posted a seven-percent hike in net sales for the quarter year-on-year, primarily driven by sales of its third generation network infrastructure.

Ericsson meanwhile said Friday the global telecommunications infrastructure market continued to decline during the first half of 2010, “although at a slower pace than in 2009.”

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