Ericsson reported strong 2011 sales but collapsing profits on Wednesday, as it warned that a weak fourth quarter and increasingly cautious operators mean a challenging 12 months lie ahead.
The Sweden-based vendor registered a 12 percent year-on-year rise in overall revenue to €25.7 billion.
However, a rise of just one percent in y-o-y Q4 sales, albeit a 15 percent rise on the previous quarter to €7.2 billion, disappointed Hans Vestberg, the company president and CEO.
“We saw increased operator cautiousness during the quarter due to uncertainties such as economic development and political unrest in some countries,” he said.
The company’s profit followed the same pattern; overall, it rose 12 percent y-o-y to €1.4 billion, but collapsed in Q4 where if fell 66 percent to just €170 million compared to the same period last year. Compared to Q3 it was down 61 percent.
Ericsson said this was due to lower sales volumes in networks, lower gross margin and losses related to Sony Ericsson.
Networks sales overall rose 17 percent y-o-y to €15 billion, but fell nine percent in Q4 compared to the same period last year. They were up two percent on Q3.
Q4 losses were down in part to the industry’s move towards LTE, particularly in North America where Ericsson invested heavily in CDMA in 2010 and which was now registering “expected” decline.
Ericsson was also hit by the poor performance of its joint ventures, Sony Ericsson and ST-Ericsson.
As European Communications reported last week, Ericsson’s decision to pull out of SE looks to have been the right decision at the right time.
Vestburg said ST-E’s newly appointed CEO has been charged with reviewing company strategy restoring profitability. It is not clear how much time he will be given but Ericsson will clearly have to make a call on this JV during 2012.
The company will be hoping for better things from Telcordia, the back office specialist that Ericsson has now integrated into its business, as it moves deeper into the growing OSS/BSS space.
The bright spot for the company was in its global sales division, which registered increased sales across the year due to network rollout, consulting and systems integration.
Vestberg said the company had acquired 70 new managed services contracts last year.
Overall, the GS business unit saw revenue increase by five percent to €9.5 billion in 2011. Even in the challenging fourth quarter, it registered a 32 percent rise on Q3.
Unsurprisingly, Asia and Latin America proved to be the biggest growth drivers from a geographical perspective during 2011, and Ericsson will need to ensure it is positioned to capitalise in these regions.
Ericsson looks in better shape than it did 12 months ago with a clearer, more streamlined business model. The question is, is it sufficiently well prepared to capture what growth is out there?
The company clearly needs to shore up its networks division and ensure it is tightly focused on delivering mobile broadband solutions.
Much could depend on new CTO Ulf Ewaldsson, an Ericsson lifer who was promoted from the company's network's division last week.
Vestberg said he expects operators to continue to be cautious with spending in the short term, but that the industry fundamentals for the longer-term “remain solid”.