Categories: Chips, Networks

Ericsson CFO says LTE rollouts hurt margins

Shares of L.M. Ericsson are down more than 15% after the Swedish telecom equipment and services company disappointed investors with its fourth quarter earnings report. Net sales were down just 1%, but margins collapsed, with operating margin (excluding joint ventures) falling to 6.4% for the quarter, down from 13.4% last year.

“2011 was the year of mobile broadband,” Ericsson CFO Jan Frykhammer told RCR Wireless News.”In the fourth quarter we have seen a seismic shift towards more coverage projects versus capacity projects.” Frykhammer explained that in many cases operators are moving away from a focus on increasing capacity in their 3G networks, and working instead to increase LTE or HSPA coverage. “The coverage phase is lower margin for us,” Frykhammer says.

In the year ahead, Frykhammer says the world’s largest mobile device network equipment maker will focus on “momentum buckets” — those areas of his business that are growing more quickly than others. He say mobile broadband, managed services, and operating business support systems are the areas where he sees the most opportunity. Frykhammer sees business support systems as an area in which his company could in time become a market leader, thanks in part to its recent $1.2 billion acquisistion of telecom software company Telcordia Technologies Inc.

RCR Wireless asked Frykhammer to comment on disappointing earnings at ST-Ericsson, Ericsson’s chipmaking venture owned jointly with STMicroelectronics. Frykhammer said that the joint venture was formed to provide chips for feature phones, and has struggled to keep up as the market moves towards smartphones. “Today it is more of an R&D company that has a good portfolio of chips,” Frykhammer said. “Now it is a mater of getting the chips into the smartphones. The way the process works is that first you get the “design win” and then you prove yourself until yet the “design in.” And it needs to be with the right players. So it is really 3 steps we have to go through: design wins, and now we need design ins, and then we need to get the right players.” ST-Ericsson is of course hoping that one of the right players will be Nokia. The world’s largest mobile phone maker has been slow to gain traction in the smartphone market, but its new high-end Lumia smartphone sports ST-Ericsson’s NovaThor chipset.

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