Ericsson sees network growth

Jan 31 2013 18:56

Stockholm - Troubled telecom equipment maker Ericsson said on Thursday it was confident about prospects this year as more operators boost network capacity to meet growing demand for video streaming services such as YouTube.

The Swedish company, which said in November it plans to axe 1 550 jobs, announced a 53% fall in annual net profit for 2012 as it was hit by a charge for joint venture ST-Ericsson.

But chief executive Hans Vestberg said the group would benefit from projects by telecom operators increasing the capacity of their networks in the second half of this year.

"While the macroeconomic and political uncertainty continues in certain regions the longterm fundamentals in the industry remain attractive and we are well positioned," he said in a statement.

Telecom operators around the world are struggling to keep up with customers' growing demand for data-heavy services such as YouTube, Netflix and online gaming apps on tablets and smartphones.

Ericsson itself said in November that the amount of data used by mobile devices had doubled over the past year, boosted by growth in video streaming services.

The trend poses a conundrum for operators, since upgrading networks is expensive and consumers have gotten used to cheap mobile surfing deals.

However, for wireless equipment makers like Ericsson and Nokia Siemens Networks the need for upgrades could signal a turnaround in a sector where spending has been suffering amid economic uncertainty.

"The operators have to do this sooner or later," said Erik Paulsson, an analyst at investment bank Pareto Oehman.

"We had expected these projects to increase network capacity, but now it's been confirmed by the company, which is very positive," he added.

By contrast, Ericsson last year won more contracts to increase network coverage, which is a less profitable part of the business.

In 2012, Ericsson's net profit fell 53% to 5 775b kronor (€646m, $876m) on sales of 227 779bn kronor, about the same as in 2011.

The company had already announced it would book a charge of 8.0bn kronor after the announcement that French-Italian group STMicro was pulling out of ST-Ericsson.

The joint venture has not reported a single quarter of profits since being created at the beginning of 2009. In the fourth quarter of last year it reported a net loss of $133.0m.

The writedown meant Ericsson reported a net loss for the quarter of 6.462bn kronor. Stripping out costs related to ST-Ericsson, which it's reportedly seeking to sell, the company would have posted a rise in net profit for the period.

Sales for the quarter rose by 5.0% on a 12-month basis to 66 936bn kronor. This was better than the average of estimates by analysts polled by Dow Jones Newswires who had expected a 3.1% rise to €65 66bn.

Network sales were particularly strong in North America, where gross margins had previously been suffering while the company increased its market share.

Shares in Ericsson were up 9.01% in late afternoon trading on the Stockholm bourse, which was 0.10% higher.

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