Ericsson Sales Rise on Spending to Upgrade Mobile Networks

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BERLIN -- Ericsson, the world's biggest maker of mobile telephone network equipment, said Thursday that its sales and profit grew faster than expected in the fourth quarter as phone operators in the United States and Canada spent heavily to upgrade wireless networks.

The company booked a net loss during the quarter as it wrote down the value of ST-Ericsson, an unprofitable smartphone component venture with the French chip maker ST Microelectronics.

But investors apparently looked past that to focus on the underlying growth. Shares of Ericsson, based in Stockholm, rose almost 10 percent after the earnings report, which showed that demand from North America had helped lift Ericsson's global sales of network equipment, the company's main business, by 6 percent from a year earlier.

Ericsson's sales of equipment, software and services in the three months through December rose 5 percent to 66.9 billion kronor, or $10.5 billion.

"This suggests the declining sales of network equipment we have seen for some time has finally begun to turn around," said Hakan Wranne, an analyst at Swedbank in Stockholm.

In North America, Ericsson said sales of mobile broadband and other network gear to U.S. and Canadian operators surged 86 percent to 9.4 billion kronor in the quarter from a year earlier, without providing a comparative figure. Sales of equipment rose 10 percent in Western Europe and 38 percent in India.

The increase followed four quarters of declining global network sales.

"We continue to believe the long-term fundamentals of this industry are attractive," said Hans Vestberg, the Ericsson chief executive. "I think it is clear that society will be using mobile broadband and the cloud much more than they are now."

Ericsson said it took a charge of 8.6 billion kronor against earnings in the period for ST-Ericsson, which is based in Geneva and has generated about $2.8 billion in losses since February 2009. The charge caused Ericsson to report a loss of 6.3 billion kronor for the fourth quarter.

Ericsson had warned investors of the charge on Dec. 20.

ST-Ericsson employs 5,090 workers and makes processor modules and modems for some Samsung, Motorola and Sony smartphones.

Mr. Vestberg said he had no new information on the future of ST-Ericsson, which reported a $71 million loss in the quarter on unchanged sales of $358 million. Last month, STMicroelectronics announced plans to leave the venture, and Ericsson said it had no intention of buying its partner's stake.

"We continue to believe that the modern technology in this venture is of strategic importance to the industry," Mr. Vestberg said. "We are now in a discussion among the shareholders about our options going forward. We don't exclude anything at this point."

Mr. Wranne, the Swedbank analyst, said he thought it was possible that Ericsson might simply resort to shutting down the joint venture sometime this year.

"Both parents have essentially turned their back on the company, and what I think they have done is essentially killed it," Mr. Wranne said. "At this point, it is not certain whether the venture will be operating six months from now."

With the charge against earnings, Ericsson has written off the entire value of its investment in ST-Ericsson, said Jan Frykhammar, the Ericsson chief financial officer. The business began to deteriorate after Nokia, its biggest client, announced plans in 2011 to halt its Symbian smartphone line, which had used many ST-Ericsson components.

Ericsson's main network equipment business, which made up 53 percent of its sales in the quarter, more than made up for the ST-Ericsson write-off. Sales of Ericsson's equipment, software and services in North America rose 51 percent to 17 billion kronor.

Excluding the ST-Ericsson charges, Ericsson's operating profit in the quarter rose by 17 percent to 4.8 billion kronor.

Sales in the quarter rose on an annual basis in all regions except Scandinavia, the Mediterranean region of southern Europe, China, the Middle East and Latin America.

The gains are a harbinger a new phase of purchasing by global phone operators, Mr. Vestberg said, as they compete to sell mobile broadband services to the rapidly expanding ranks of smartphone users. Ericsson expects the number of mobile broadband users around the world to rise 40 percent to 2.1 billion by the end of this year from 1.5 billion in 2012.

By the end of this year, 3 in 10 cellphone users around the world will be operating smartphones and subscribing to mobile broadband service, Ericsson predicted. Demand for fast wireless Internet will in turn lift demand for Ericsson's networks, Mr. Vestberg said. In the past quarter, he said, 40 percent of all cellphones sold worldwide were smartphones.

Operators, recognizing the strong consumer interest in mobile broadband, are stepping up their orders for new data networks that can handle the heavy traffic demands on their grids.

"Operators and customers are focusing now on mobile broadband," Mr. Vestberg said. "We are clearly seeing a change in their behavior."

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This article originally appeared in The New York Times.


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