Ericsson misses forecasts but sees sales boost ahead

Revenue decline was expected: Ericsson CEO

Mobile telecom equipment maker Ericsson has missed first-quarter sales and profit forecasts, citing weak demand in North America and Japan.

However, the company said that recent business wins would lift sales later in the year and CEO Hans Vestberg downplayed the results, emphasizing that the decline in sales had been expected well in advance.

"We envisioned that we would come into (the year) with a bit lower activity in the coverage projects in North America and that is such a big market for us and that has continued into the first quarter," he told CNBC.

"It was as expected. Of course you never want to have a decline in revenue but it was very much expected. The same goes for Japan where we also talked in Q3 last year about lower activity and those are not offset by the improvements in capacity where we are 'densifying' networks and selling more software."

Analysts have been expecting Ericsson sales to get a boost this year as big carriers in Europe and China spend on high-speed 4G LTE networks to cope with a surge in mobile data traffic, driven by more video use on smartphones.

Growth in China, the Middle East and Latin America in the first-quarter only partly offset a fall in sales due to large projects coming to an end in North America and Japan.

"What we are also saying is that with the awarded contracts that we have when we look into the second half we believe we will gradually have an impact on sales in the second half on mobile infrastructure and that will come back a little bit to where we are right now," Vestberg said.

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On a brighter note, underlying profitability continued to improve. The closely watched gross profit margin rose to 36.5 percent for the group. That compared with expectations of 34.0 percent and 32.0 percent in the year-ago quarter, boosted by mobile broadband capacity projects and more software sales to some clients.

Earnings before interest and tax were 2.6 billion Swedish krona ($395 million) compared with 2.1 billion in the year-ago quarter, missing a mean forecast of 3.5 billion in a Reuters poll of analysts.

Sales for the group, the world number one mobile network equipment maker, were 47.5 billion krona against a forecast of 51.8 billion krona.

Commenting on Europe's performance so far in 2014, Vestberg said that for a few quarters he had seen good activity levels on the continent.

"Our western Europe region had flat sales this quarter but still some markets were growing and, if you take northern Europe and the central Asian region, they were growing well this quarter," he said. "So we see a fairly stable situation in Europe where we have been growing."

Ericsson shares were down 4.5 percent in Wednesday trade.

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