Ericsson Soars on Strong Q3

Ericsson AB (Nasdaq: ERIC) rushed out the news today that it had a stronger than expected third quarter and was not affected by the global financial crisis, which sent its stock soaring more than 20 percent this morning.

The Swedish vendor was scheduled to report its third-quarter results on Thursday, but released the news four days early because the numbers were better than expected. [Ed. note: Last year, remember, Ericsson rushed out third-quarter results, but that was because they were so bad.] (See Profit Warning Slams Ericsson , Ericsson CFO Steps Down, and Ericsson Predicts Weak Q4.)

"Our business in the quarter has not been impacted by the financial turmoil," said Ericsson president and CEO Carl-Henric Svanberg n a statement. "Our customers are generally financially strong. In addition, networks are loaded and traffic shows strong increase."

Ericsson's revenues were up 13 percent in the third quarter to SEK 49.2 billion (US$6.6 billion), compared with SEK 43.5 billion ($5.8 billion) in the same quarter last year. Third-quarter revenues were up just 1 percent, though, from the previous quarter's revenues of SEK 48.5 billion ($6.5 billion).

Ericsson's net income plunged 28 percent to SEK 2.8 billion ($378 million) -- which includes restructuring charges -- compared with SEK 4 billion ($540 million) in the third quarter last year. But this drop was not as bad as analysts were expecting.

Don’t get too excited
Despite the strong quarter and the revelation that Ericsson is not affected by the global financial turmoil, Svanberg urged caution for those making forecasts for the fourth quarter and next year. Ericsson itself does not issue a guidance, but the company said it is planning for a "flattish" market in global mobile infrastructure and "good growth" in professional services next year. (See Table 1.)

Table 1: Ericsson Q3 Revenue by Business Division

Revenues in billions of Swedish Kronor	Q3 2008	Q3 2007	Year-on-year % change	Q2 2008	Sequential % change
Networks revenue	33	28.5	+16%	33.3	-1%
Networks operating margin	11%	8%		10%
Professional services revenue	11.8	11	+7%	11	+7%
Professional services operating margin	16%	15%		14%
Multimedia revenue	4.4	4	+10%	4.2	+5%
Multimedia operating margin	3%	1%		-1%
Total revenue	49.2	43.5	+13%	48.5	+1%

"In the present financial turmoil, it is however hard to predict how operators will act and to what extent consumer telecom spending will be affected," said Svanberg. "We have a positive longer-term view for our industry, however, as we look into 2009, we continue to plan for a flattish market, and we have measures in place also for tougher conditions."

Ericsson continues its cost cutting program to save SEK 4 billion annually, which it announced in February this year. The company says the cost reduction should have full effect from 2009. (See Ericsson Cuts Jobs as H2 Bites, Ericsson Sinks on Q2 Profit Dip.)

Table 2: Ericsson Q3 Revenue by Geographical Region

Revenues in billions of Swedish Kronor	Q3 2008	Q3 2007	Year-on-year % change	Q2 2007	Sequential % change
Western Europe	11.6	12.3	-6%	12.1	-4%
Central and Eastern Europe, Middle East and Africa	13.1	12	+9%	11.2	+16%
Asia/Pacific	14.1	12	+17%	15.8	-11%
Latin America	6.1	4.2	+43%	5	+23%
North America	4.3	3	+44%	4.4	-2%

While revenues in Western Europe continue to shrink, Ericsson reported the strongest sales growth in Latin America and North America, where revenues grew 43 percent and 44 percent, respectively, year-on-year.

The boost to Latin American sales comes mainly from mobile broadband build-outs in Brazil and professional services sales in the region.

In North America, the revenue growth driver is also mainly mobile broadband. Ericsson also noted that Redback Networks Inc. sales were down in the U.S., but were up overall thanks to stronger international sales.

— Michelle Donegan, European Editor, Unstrung