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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