STOCKHOLM—Sweden's Ericsson AB on Friday reported a 16% increase in third-quarter net profit as the mobile network giant's global cost-cutting program and solid sales in services offset lower network sales.

"Profitability improved year-on-year, with lower operating expenses as a significant contributor," Chief Executive Hans Vestberg said in a statement.

Net profit rose to 3.08 billion Swedish kronor ($364.4 million) in the third quarter, from 2.65 billion kronor in the same period a year earlier, boosted by lower operating expenses.

Operating expenses, excluding restructuring charges, fell to 14.3 billion kronor from 15.2 billion kronor in the same period last year partly driven by the continuing cost and efficiency program, which is intended to slash costs by 9 billion kronor annually in 2017 compared with 2014. Cost adjustments following lower business volumes also partly contributed to lower costs.

Ericsson faces many challenges ahead. The company will have to fight to protect its leading position as a network-equipment provider after Finnish rival Nokia Corp.'s $16.6 billion acquisition of France's Alcatel-Lucent is set to create a company with sales that can match the Swedish company.

At the same time, the company is at loggerheads with Apple Inc. over mobile technology patents. The two companies are suing and countersuing each other in the U.S. Ericsson is also suing Apple in Europe, with the first court rulings by a Germany court seen in the first quarter of next year.

To maintain profitability Ericsson must keep investing in new growth areas such as future network architecture for fifth generation networks, cloud services and more efficient video delivery.

Net sales increased to 59.16 billion kronor, higher than 57.64 billion kronor a year earlier. Sales adjusted for comparable units and currency fell 9% on the year and the company's closely watched gross margin, which has been under pressure over past years, shrunk to 33.9%, down from 35.2% a year earlier.

Ericsson said the mobile broadband business in North America remained stable on the quarter, but remained at a lower level than a year ago. It said a slowdown of 4G deployments in mainland China was partly offset by strong sales growth in India and in South East Asia.

Write to Jens Hansegard at jens.hansegard@wsj.com

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(END) Dow Jones Newswires

October 23, 2015 04:25 ET (08:25 GMT)