By Juhana Rossi
Sweden's Ericsson AB on Tuesday reported a weaker-than-expected
fourth-quarter net profit and said sales growth had stalled, after
Norther American network operators curbed investment in new
high-speed wireless networks.
The telecom-equipment maker said sales in North America dropped
5% in the October-to-December quarter, compared with the prior-year
period, as major U.S. network operators such as AT&T Inc. and
Verizon Communications Inc. shifted spending from infrastructure to
acquisitions and spectrum auctions.
Ericsson is expecting "somewhat slower business in North
America" to continue in the near-term, Chief Executive Hans
Vestberg said at a news conference.
North America has been Ericsson's biggest market in recent
years, accounting for 19% of the company's total revenue in the
fourth quarter and 24% of total revenue for the full year.
Ericsson has benefited in recent years as U.S. operators
upgraded their wireless infrastructure to the latest-generation
standard to accommodate ever greater data traffic coming from
on-demand video and mobile Internet use.
However, the company is facing stiff competition from two rivals
in the U.S., France's Alcatel-Lucent, which is particularly strong
in the U.S., and Finland's Nokia Corp., which is mainly a
network-equipment supplier following the sale of its loss-making
handset business to Microsoft Corp. last year.
"Nokia is clearly the challenger in North America. It is
actually growing in the U.S. even when the overall market is
shrinking," said Sami Sarkamies, analyst with Nordea Bank in
Helsinki.
Nokia reports its fourth-quarter earnings on Thursday.
Despite the expected near-term weakness in the U.S., Mr.
Vestberg was confident about Ericsson's long-term prospects in the
U.S.
New models of mobile devices are being introduced, and therefore
operators will have to offer more bandwidth to support more users,
he said.
Ericsson's net sales for the fourth quarter came in at 67.99
billion Swedish kronor ($8.2 billion), up 1% from 67.03 billion
kronor in the same period last year. Weak sales in North America
were partially offset by robust sales growth in many markets in the
Middle East, Europe and Asia.
Spending on telecom technology was especially strong in China
where operators pulled out all the stops to build fourth-generation
wireless infrastructure in 2014.
Mr. Vestberg characterized the speed with which mobile-broadband
technology was adopted in China as "just amazing." He added that
Ericsson is expecting this grow to continue at a high pace.
Western companies such as Ericsson and Nokia encounter limited
opportunities in China because the local-network operators purchase
the bulk of their equipment from the Chinese suppliers Huawei
Technologies Co. and ZTE Corporation, said Mr. Sarkamies.
"In practice when Chinese operators have announced big spending
deals, a third of them have gone to Western suppliers. ZTE has
benefited most from these deals," Mr. Sarkamies said.
Ericsson's annual sales in Northeast Asia, which includes China,
Japan and South Korea, rose by 1% to 28 billion kronor in 2014. The
figure accounted for 12% of Ericsson's total revenue in 2014.
For the fourth quarter Ericsson reported a net profit of 4.22
billion kronor, or 1.29 kronor a share, below analysts' forecast of
a median 4.56 billion kronor, or 1.39 kronor a share.
In the same period last year Ericsson's reported a net profit of
6.41 billion kronor, boosted by a one-time gain of 3.3 billion
kronor from a licensing agreement with Samsung Electronics Co.
Ericsson's gross margin, a closely watched measure of its
performance, came in at 36.6%, beating comfortably the median
forecast of 34.5%, according to a poll by Reuters. The margin
improvement stemmed largely from higher software sales and
efficiency improvements.
The company also benefited from the dollar's appreciation
against the Swedish krona even though it realized a one-time
currency hedging loss of 800 kronor during the quarter.
Ericsson's is proposing a dividend of 3.40 kronor a share for
2014, up 13% from 2013's 3 kronor a share payout.
Write to Juhana Rossi at juhana.rossi@wsj.com
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