LM Ericsson Telephone Company (ERIC) reported earnings of 16 cents per share from continuing operations for the third quarter of 2010, matching the Zacks Consensus Estimate.
Revenues in the quarter were up 2% on a year-over-year basis to SEK 47.5 billion ($6.5 billion) but were down 1% sequentially. Comparable sales after adjusting for currency effects decreased 5% compared to the prior-year quarter. Component shortages and supply chain bottlenecks made it difficult to fully meet the demand for mobile broadband. The modernization of existing 2G/3G stations has started to take off and is expected to be accretive to earnings in 2011.
During the quarter, mobile broadband expanded, especially in the U.S. and Japan. In China, demand for 2G capacity expansions was favorable and in India, vendor selection for 3G services is almost over. Ericsson is supplying 3G equipment to Vodafone Essar, Bharti Airtel and Idea Cellular in India. Western Europe is slower as far as modernization contracts are concerned. Worldwide operator focus is on reducing expenses and outsourcing of operations.
Network sales increased by 6% year-over-year, assisted by the acquired Nortel businesses. Sales improved 2% sequentially. Mobile broadband sales, including radio, backhaul and packet core, were driven by demand from markets such as the U.S. and Japan.
Global Services sales increased 3% year over year, and declined 5% compared to the prior quarter. It was negatively impacted by a strong local currency in the quarter. Global services sales amounted to 40% of Group sales with strong recurring revenues.
Professional Services sales improved 7% on a year-over-year basis and 10% in local currencies. Managed Services sales in the quarter increased by 46% compared to the prior year period.
Gross margins rose to 39% compared to 36% in the year-ago period but remained flat sequentially. This was the result of a positive business mix dominated by a higher proportion of network upgrades and expansions as well as cost-reduction initiatives.
Sony Ericsson reported good results due to efficiency programs and a new slimmer product portfolio. Overall, contribution from joint ventures was nil for Ericsson.
Net income amounted to SEK 3.6 billion ($495 million) and earnings per share were SEK 1.14 ($0.16) in the quarter.
Cash, cash equivalents and short-term investments amounted to SEK 76.2 billion ($10.5 billion) at the end of the quarter. Inventory increased slightly sequentially by SEK 0.9 billion ($123 million) to SEK 30.3 billion ($4.2 billion), impacted by a seasonal build-up and larger-than-usual inventories caused by supply chain problems.
We currently have a Neutral recommendation on Ericsson.
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