LM Ericsson Telephone Company (ERIC) reported 82% year-over-year drop in fourth quarter 2009 net income at SEK 0.7 billion ($100 million) on revenues of SEK 58.3 billion ($8.3 billion).
Networks’ sales in the quarter declined by 16% year-over-year. Full year sales declined by 3%. The mobile infrastructure market share was maintained well in 2009. During the second half of 2009, Networks’ sales were impacted by reduced operator spending in a number of markets.
Professional Services sales in the quarter were flat year-over-year. Organic growth in local currencies amounted to 2%. Managed services sales in the quarter increased by 19% year-over-year and by 22% for the full year. Sales for the second half of the year were negatively impacted by the reduced scope in a managed services agreement in Italy as well as somewhat lower volumes in project-related services.
Multimedia sales in the quarter for comparable units, i.e. adjusted for the divestment of the PBX and mobile platform operations, decreased year-over- year by 14% mainly due to tough comparison with a strong fourth quarter 2008 and somewhat slower sales of revenue management solutions in several emerging markets.
Ericsson’s share in Sony Ericsson’s income before tax was a loss of SEK 1.0 billion in the quarter. Ericsson’s share in ST-Ericsson’s income before tax, adjusted to IFRS, was a loss of SEK 0.4 billion in the quarter, including restructuring charges of SEK 0.2 billion.
Western Europe sales declined 21% year-over-year in the quarter and 6% for the full-year for comparable units, i.e. excluding mobile platforms and PBX. Sales in Central and Eastern Europe, Middle East and Africa decreased in the quarter by 21% year-over-year and by 4% for the full year. Asia Pacific sales in the quarter decreased 18% year-over-year and increased by 4% for the full year. Latin American sales in the quarter decreased by 25% year-over-year, and by 13% for the full year. North American sales in the quarter increased by 101% year-over-year. Full- year sales increased 41%.
In January 2009, cost reduction activities were initiated, targeting annual savings of SEK 10 billion. from the second half of 2010 split equally between cost of sales and operating expenses. Related restructuring charges were estimated to SEK 6-7 billion.
In the third quarter 2009, it was reported that the program was ahead of plan and additional opportunities for efficiency improvements had evolved during the program and would lead to further cost savings, with related charges, during the last three quarters of the program. The program is planned for completion by the second quarter 2010 and it is now estimated that the total annual savings of the entire program will amount to SEK 15-16 billion from the second half of 2010. Related total restructuring charges are estimated at SEK 13-14 billion.
When the initial program was announced in January 2009, it was anticipated that the actions would reduce the number of employees by some 5,000, including 1,000 in Sweden. The target has been exceeded and is now estimated to reach approximately 6,500.
For 2010, the company is determined to increase its efforts to combine its strong technology leadership position and service capabilities to provide value to customers and ensure its continued healthy financial development.
We currently have a Neutral recommendation on ERIC.
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