North America fuels Ericsson's Q2 results

North America continues to fuel L.M. Ericsson’s (ERIC) financial results, accounting for 27% of the company’s second-quarter revenues. Q2 sales in North America jumped a whopping 128% year over year, while Ericsson reported fewer sales in every other geographic sector. Sales in India were down 63% as the country just completed its 3G and BWA auctions, but has yet to begin building out the networks.
The world’s largest infrastructure provider reported a profit of roughly $258 million on sales of more than $6.5 billion, down 8% year over year, but up 6% from the first quarter. Ericsson’s stock was down about 7% on the news, despite a 39% gross operating margin.
The company completed its restructuring effort, announced in January 2009, which included layoffs and other cost reductions. These cost reductions and a better business mix contributed were encouraging in the quarter, said CFO Jan Frykhammer in an interview with RCR Wireless News this morning. However, component shortages from suppliers hurt the company. CEO Hans Vestberg estimated this accounted for between 3 billion and 4 billion Swedish Kroner) less in sales.
Mobile broadband growth is driving the North American market, Frykhammer noted. Ericsson also manages Sprint Nextel Corp.’s wireless network and picked up CDMA and GSM assets from Nortel Networks, but even excluding those drivers, business was up in North America, he said. To further see how important North America is to Ericsson, the company receives 26% of revenue from North America, followed by China, with a 6% share, Frykhammer noted.
“Operator investment behavior continues to vary across regions and countries. In markets with strong data traffic uptake, network quality and efficiencies are high on operators’ agendas,” Ericsson noted in announcing its financial results. “Ericsson’s addressable market was estimated to $250 billion in 2009 of which $200 billion relates to the core business mobile networks, converged networks, services and multimedia. … While the global mobile infrastructure market declined by more than 10% in 2009 with continued decline in the first quarter 2010, measured in U.S.dollars, we believe that the fundamentals for longer-term positive development for the industry remain solid.”
Ericsson’s operating expenses increased as it integrates the Nortel business and spends more on 4G trials.
The company’s professional services business was flat, but saw an increase in its managed services business, with nine new contracts in the quarter, Frykhammer noted. In addition, after the quarter ended the vendor won a managed services contract with China Mobile Hebei for 22,000 base stations and one with Telefonica for its prepaid business.
Sony Ericsson and ST Ericsson
Sony Ericsson sold 11 million devices in the quarter and posted a profit of $15 million. While sales were down 20% compared to the previous year, the average selling price per unit increased 31%.
Meanwhile, its chip business joint venture, ST Ericsson, reported net sales down 18% year over year to $544 million, amid restructuring efforts.