STOCKHOLM, Sweden—L.M. Ericsson said its first-quarter earnings fell just below expectations for the first time in more than two years as the company absorbed integration costs after buying Marconi Corp.’s assets for $2.1 billion last October.
Ericsson reported first-quarter net income of $609 million from revenues of $5.2 billion, down from a year go when Ericsson posted net income of $615 million based on sales of $4.2 billion.
Ericsson noted that sales in the quarter were up 24 percent compared to the same period a year ago. The company reported that its North American sales rose 58 percent, driven by successful third-generation launches in the United States. In Asia-Pacific, sales were up 44 percent, but in Latin America, growth was held to only 3 percent, which Ericsson attributed to recent network rollouts, saying that business is expected to pick up later this year as plans for W-CDMA take shape.
Analysts had expected net income of $701 million from revenues of $5.1 billion. However, Ericsson said the former Marconi operations generated an operating loss of $79 million, including $52.9 million in restructuring charges. In addition, Ericsson said that its operating margin, “decreased year-over-year from 21 percent to 16.9 percent, primarily due to effects from new contracts with an increased proportion of network rollouts and initial phases of large-scale services contracts.”
But the company said its managed services business is growing briskly.
“Our good organic sales growth continues, in this quarter primarily driven by services,” stated Carl-Henric Svanberg, president and chief executive officer of Ericsson. “Through our early lead in services we have gained a strong position with an exciting growth potential. All areas within services are growing, especially managed services and hosting, as a consequence of operators’ need to focus on business development and total cost of ownership.”
Of the Marconi integration, Svanberg said, “Our position in the growing broadband and transmission segments has also been significantly strengthened. The integration process is well under way and business development has been better than expected. We have postponed the timings of certain actions to safeguard the increased orders and delivery commitments. As a consequence, the targeted cost savings will be realized slightly later than originally planned.”
Looking forward, Ericsson predicted moderate growth for wireless infrastructure equipment, adding that China is still holding out awarding its 3G licenses, which is expected to spur massive infrastructure sales as Chinese operators race to build 3G networks to serve the world’s largest market.
News of the earnings pushed Ericsson’s stock down $2.38 to $35.60 per share during mid-day trading on the Nasdaq.
