Third-generation wireless buildouts propelled earnings for L.M. Ericsson and Lucent Technologies Inc. during the quarter ended June 30.
Ericsson reported net profits of $744 million during its second quarter, a 16-percent increase in profits from the second quarter of 2004, when the Swedish manufacturer reported net profits of $641 million. Ericsson said its North America sales are recovering, noting 31-percent year-over-year growth following operator consolidation.
“The activity level in emerging markets is accelerating, which means more people have access to communication services,” said Chief Executive Carl-Henric Svanberg. “In parallel, operators seek new ways of working to meet the global trends of increased tariff competition and convergence of technologies and services.”
Sales rose from $4.18 billion to $4.92 billion, an 18-percent increase. In addition to North America, Ericsson reported strong sales in Latin America and Central Europe, the Middle East and Africa. The company’s revenues were up 7 percent year over year in Western Europe and 8 percent in Asia, where operators are expanding their GSM networks and testing third-generation technology.
“The W-CDMA rollout continues, and Cingular Wireless’ rapid buildout plan in the U.S. is driving the industry forward,” Ericsson said. “When complete, Cingular’s buildout will have contributed to doubling the installed W-CDMA base outside of Japan.”
Ericsson’s gross margin came in at 45.9 percent, close to the 45 percent Ericsson had repeatedly said it expected to sustain, but slightly below analyst forecasts of 46.7 percent.
The vendor increased slightly its 2005 outlook, saying it believes the global mobile systems market will show moderate growth compared with 2004. Ericsson had previously estimated slight growth in 2005 compared with 2004.
At Lucent, the financials were down slightly from the year-ago period, despite strength in its wireless business.
Lucent reported earnings of $372 million, or 7 cents per share, for the third quarter, which ended June 30. The results were down 3.9 percent from last year’s third-quarter earnings of $387 million, or 8 cents per share.
The company posted revenues of $2.34 billion for the quarter, the same amount of revenues posted for the fiscal second quarter of this year. Still, revenues increased 7 percent from the third quarter of last year, when Lucent reported $2.19 billion in revenue. Lucent said tax items and recoveries of bad debt and customer financing helped this quarter’s earnings.
“Lucent’s balance sheet continues to show improvement and in the F3Q, cash balances remained at approximately $4.1 billion, despite the company’s use of $318 million to buy back debt. The increase was primarily driven by strong working capital management, however operating profits-excluding the benefit of net pension credits-also played a role in the higher cash levels,” reported the investment analysts at Lehman Brothers. “Our forecast for North American carrier capital spending is approximately 5 percent, and we firmly believe Lucent should be able to grow its top line at least 5 percent this year.”
Lucent Chairman and Chief Executive Patricia Russo said, “This quarter, we continued to deliver steady, profitable results driven primarily by our strength in 3G mobile networks and growth in our Services business. We believe our wireline business is stabilizing, and we continue to strengthen our position in the next-generation of IMS-based networks with more customer trials and developments.”
In April Lucent reorganized to combine its wireless and wireline business segments. “We continue implementing common platforms for our IMS-based solutions, including our optical and data portfolios and in our next-gen access and applications businesses,” Russo said.
“These actions contribute to our positioning for success in the key growth markets for next-generation networks. We continue to invest in the areas that are critical to our vision of converged services-mobile high-speed data, broadband access, next-gen optical, VoIP, as well as services, the government sector and emerging markets. And we are increasingly focusing these investments in areas such as next-gen access for high-end video distribution like IPTV and revenue-generating applications for converged services.”
Lucent Chief Financial Officer Frank D’Amelio commented on the company’s expectations for the remainder of fiscal 2005, saying, “We continue to expect Lucent’s annual revenues for fiscal 2005 to increase on a percentage basis in the mid-single digits, which we believe will be at about the market growth rate.”
In its report, Lucent said that the gross margin for the fiscal third quarter was 45 percent of revenues compared with 42 percent in the second quarter and 43 percent in the third quarter of last year. Operating expenses for the third quarter totaled $681 million, compared with $707 million for the second quarter and $598 million.
