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Ericsson shares nosedive on weak report

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Ericsson shares nosedive on weak report
09:49 CET+01:00
Ericsson on announced a worse-than-expected 73 percent drop in its fourth quarter net profits, sending shares in the Swedish telecom giant plummeting in Wednesday morning trading.

Shortly after trading opened on the Stockholm exchange on Wednesday, the price of Ericsson shares had dropped around 14 percent to 59 kronor ($8.75) after the company announced its results.

“This was the worst quarter of 2011,” Ericsson CEO Hans Vestberg told the TT news agency.

Ericsson reported pretax income of 1.8 billion kronor for the final quarter of 2011, compared to the 7.8 billion kronor earned in 2010.

The quarterly earnings were "really bad", Ålandsbanken analyst Lars Söderfjell told Dow Jones Newswires.

"The big negative surprise is the weak performance for Ericsson's networks business unit, where sales have fallen brutally," he said, adding: "This is primarily a result of weak sales in North America."

Network sales fell by nine percent to 33.3 billion kronor in the fourth quarter. For the full-year 2011, sales rose by 17 percent.

In the fourth quarter, overall sales climbed by 1.4 percent to 63.7 billion kronor while gross margin slipped from 34.7 percent in 2010 to 30.2 percent in 2011, Ericsson said.

Analysts surveyed by Dow Jones Newswires had forecast sales of 67.8 billion and a gross margin of 34.2 percent.

"For the full year 2011, we had a strong sales growth and an increase in net income. In the fourth quarter, however, we saw weaker development in networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernisation projects in Europe, and a higher services share," chief executive Hans Vestberg said in a statement.

For the full year 2011, sales increased by 12 percent to 226.9 billion and net profit rose by 9.4 percent to 12.2 billion.

The quarterly earnings were heavily impacted by weak results for its joint ventures ST-Ericsson and Sony Ericsson.

Mobile handset maker Sony Ericsson's deep fourth-quarter loss weighed heavily on Ericsson's operating profit, dragging it down by 1.1 billion kronor, while ST-Ericsson's semiconductor business lowered the number by an additional 800 million kronor, according to the earnings statement.

Sony Ericsson ended last year 247 million euros in the red after fierce competition and restructuring costs slammed its fourth quarter sales.

It was a sad farewell to Ericsson's joint venture with Sony, after the Japanese electronics giant said late last year it would buy out its Swedish partner for 1.05 billion euros in cash, giving it full control over its increasingly vital handset business.

The joint venture is set to dissolve by the beginning of February.

Mobile phone components company ST-Ericsson meanwhile announced Tuesday a deepening of its losses in 2011 to $841 million.

All included, Ericsson saw its net profit shrink 66 percent in the fourth quarter year-on-year to 1.5 billion kronor.

Ericsson does not publish an outlook, but analysts polled by Dow Jones Newswires expected European operators to be more cautious investing in network expansions in 2012 due to the raging debt crisis on the continent, which will likely impact the Swedish company and its competitors.

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