U.S. News

Ericsson Profit Climbs but Misses Forecast


Ericsson, the world's biggest mobile network maker, reported softer second-quarter earnings than expected on Friday, posting flat sales in its key European market and disappointing the market in its multimedia drive.

But it said it continued to outperform the market and that it was encouraged by robust revenue in the Asia-Pacific region.

Ericsson said second-quarter pretax profit rose to 9.3 billion Swedish crowns ($1.40 billion) from 8.3 billion a year earlier. That compared with an average forecast of 9.8 billion crowns in a Reuters survey.

Sales totaled 47.6 billion crowns in the second quarter, just missing a 47.8 billion forecast.

The company said cash flow from operations rose to 4.2 billion crowns from 200 million crowns a year earlier. Cash flow has been a worry for investors as it has been declining for several quarters.

As the Sweden-based company has relied more on large turnkey projects, its cash flow as a percentage of earnings has skidded, introducing an element of uncertainty for the stock market.

Analysts said the report was mixed.

Ericsson CEO on Earnings

"This was marginally weaker than expected in terms of the earnings. Sales were as expected while the cash flow was okay," said Jan Ihrfelt, analyst at Swedbank.

Ericsson repeated its forecast that growth in the GSM/WCDMA market -- 2G and 3G technology -- would be in the mid-single digits in 2007.

"We continue to outpace the market," Ericsson Chief Executive Carl-Henric Svanberg said in the earnings statement.

Sales in Asia-Pacific climbed 32% from a year earlier but revenue in Europe during the quarter was flat and it was down 18% in North America.

Service Oriented

Ericsson said its services division showed 11% growth.

"Growth was slower in network design and systems integration. The high activity level in previous quarters has now translated into increased network rollout activities," the company said.

Analysts have said booming services growth was increasingly driving earnings.

But Ericsson's move into multimedia -- a key flank in its long-term strategy to create new sources of growth -- was not going as well, they said.

Ericsson said multimedia growth was six percent from a year earlier, and the company noted again that revenues in this area can vary between quarters.

Hannu Rauhala of Oko Bank in Helsinki said overall results were mostly in line with forecasts, adding: "Only multimedia missed expectations."

Three Billion and Counting

Ericsson's chief executive hailed the passing of a major milestone in the mobile industry.

"The total number of mobile subscriptions has now reached three billion," Svanberg said. "GSM shipments reach new record levels every quarter and we continue to see growing demand for mobile and fixed broadband," he said.

The founder of a British analysis firm, the Mobile World, last month noted that it took 20 years for the first billion to sign up but just 40 months for the second. The passing of the three billion mark has now been achieved in just two years.