Ericsson flags North America slowdown

By Reuters

Oct 24, 2014 09:59 AM EDT

Mobile telecoms gear maker Ericsson said on Friday a slowdown in North America created uncertainty over fourth quarter sales as operators cut spending after big investments in high-speed networks.

A build-out of the newest 4G/LTE networks by operators in North America, where Ericsson makes about a quarter of its sales and Chinese rival Huawei [HWT.UL] is effectively barred from doing business, has supported the Swedish firm at a time of stagnation in much of Europe.

But a period of intense investment to equip networks to deal with huge traffic increases from on-demand video and mobile internet use may be drawing to a close. The two biggest U.S. operators, Verizon and AT&T, have both said they were slowing the pace of capital spending.

U.S. operators are also facing a multi-billion dollar auction of valuable long-wave radio spectrum next year which will improve the reach of their networks.

Ericsson, the world number one mobile network equipment maker ahead of Huawei and Finland's Nokia, said the focus on cash flow at large North American customers made it harder to judge its near term sales outlook.

"I think that is the main uncertainty for Q4," Chief Financial Officer Jan Frykhammar told a conference call.

However, growth in the Middle East, China, India and Russia offset the North American sales drop and helped Ericsson show its first quarter of underlying sales growth this year.

"The trend is clear: Ericsson's biggest customers in North America and Japan have largely completed their large roll-out programs of LTE, and revenues are to an increasing level coming from other markets, among them Middle East and China," said Bengt Nordstrom, chief executive at telecoms consultancy firm Northstream.

"It will be increasingly important to grow market share in China which by far will be the biggest LTE market for the coming 3-4 years."


Ericsson shares were down 1.5 percent by 1100 GMT (7 a.m. EDT) after rising as much as 2.1 percent in early trade, and underperforming the STOXX Europe 600 Technology Index which was down 0.5 percent.

Concerns over the fourth quarter took the shine off a positive sales performance.

Ericsson sales were 57.6 billion Swedish crowns in the third quarter ($7.9 billion), beating a mean forecast of 55.4 billion in a Reuters poll of analysts.

However, operating profit fell to 3.9 billion Swedish crowns compared to 4.2 billion in the year-ago quarter and lagging a poll forecast of 4.2 billion.

That contrasted with rival Nokia which on Thursday posted forecast-beating results, while number four player Alcatel-Lucent reports earnings next week.

Currency hedging contracts, higher expenses and investments weighed on profits, Ericsson said.

"The comments from the company that the U.S. business activity slowed down during the quarter points to further margin pressure into Q4," Nordea said in a research note.

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