ERIC Ericsson

By Jens Hansegard 

STOCKHOLM--Sweden's Ericsson AB on Wednesday reported earnings that undershot expectations, sending shares some 5.1% lower in morning trade.

The communications technology company reported a 67% increase in fourth-quarter net profit, helped by a stronger dollar and higher licensing revenue from a new global license deal with Apple Inc. but analysts had hoped for a profit jump of about 74%. Ericsson sells a lot of services and equipment in dollars but reports in kronor.

Net profit rose to 7.06 billion Swedish kronor ($825.3 million) in the three months to end-December from 4.22 billion kronor in the same period a year earlier, the company said on Wednesday. The consensus view was that Ericsson would report a net profit of 7.34 billion kronor.

Ericsson's full-year revenue from intellectual property rights rose to 14.4 billion kronor from 9.9 billion kronor a year earlier, with the Apple global licensing agreement serving as a driver, Ericsson said.

Ericsson and Apple Inc. in December reached a global license agreement that ended an almost-year long patent dispute between the companies.

The dispute was an example of the tricky relationships in telecoms, where standardization of technologies and increased penetration of smartphones rely on sharing research and development globally. Sharing such standards has led to many complaints and legal squabbles between network manufacturers and smartphone makers over the fair use of some technologies.

Details of Ericsson's contract with Apple remain confidential, but analysts estimated the deal would add close to 3 billion kronor to Ericsson's adjusted fourth-quarter operating profit.

Net sales in the quarter increased to 73.6 billion kronor, higher than 68.0 billion kronor a year earlier, but below analysts' forecast for 74.07 billion kronor. Adjusted for comparable units and currency, sales fell 1%. The company's closely watched gross margin, which has been under pressure over past years, remained stable at 36.3%.

Ericsson's improved but disappointing performance follows its agreement announced last November with Cisco Systems Inc. designed to combine Cisco's strength in Internet technology with the Swedish company's expertise in equipment used by wireless operators.

The pact, which comes as the companies face heightened competition from companies such as Huawei Technologies and Nokia, entails that the companies will collaborate in areas that include making existing products work better together, while Ericsson will resell Cisco gear.

Ericsson said that the partnership, which stops short of a full-blown merger, means that the companies may jointly develop entirely new hardware and services.

"Ericsson and Cisco will continue to explore further joint business opportunities as the partnership progresses," Chief Executive Hans Vestberg said at a news conference Wednesday.

Ericsson said that the pact will start to improve operating income this year and that it will generate $1 billion or more in additional sales by 2018.

The company declared a 8.8% higher full-year dividend of 3.70 kronor a share, up from 3.40 kronor in 2014.

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

Corrections & Amplifications

Ericsson reported net profit for the three months to end-December. An earlier version of this article misstated the period as the three months to end-September. Ericsson's full-year revenue from Intellectual property rights rose to 14.4 billion kronor from 9.9 billion kronor a year earlier. An earlier version of this article incorrectly stated the reporting period for revenue from intellectual property rights was for the quarter. (Jan,27, 2016)

(END) Dow Jones Newswires

January 27, 2016 06:20 ET (11:20 GMT)

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