Ericsson says margins weakened during the first quarter as the company worked to win new contracts. The company says long-term trends are positive and investors seem to agree; Ericsson’s shares are up about 4% this morning.
The world’s largest telecom equipment vendor earned 1.2 billion Swedish krona ($181 million) on sales of 52 billion krona ($7.8 billion) during the first quarter. Sales were up 7% year-on-year, but operating margin and earnings declined. Comparisons to last year are complicated by the fact that the year-ago quarter included a large gain on the sale of Ericsson’s stake in Sony Ericsson.
Johan Wibergh, head of Ericsson Business Unit Networks, said that network rollouts can put pressure on margins as vendors compete to win new contracts and new customers. With many parts of the world rolling out LTE, Ericsson sees abundant opportunity, but expects some pricing pressure.
One lower-cost competitor to Ericsson, Huawei, said yesterday that it plans to abandon the U.S. market, where it has faced hostility from the government. Huawei has done business with midsize U.S. carriers in the past. When asked if Huawei’s departure could create more opportunities for Ericsson, Wibergh said Ericsson is aleady very successful with regional U.S. operators.
Wibergh said he was most pleased about sales of the company’s smart services routers, which he says won 12 new carrier customers during the most recent quarter. A total of 51 operators are now implementing the SSR platform, according to Wibergh. SSR is an IP services delivery platform that offers services for both fixed and mobile network infrastructure.
Wibergh also noted an increasing carrier interest in Ericsson’s Wi-Fi service offerings. “It’s been slower than anticipated, but momentum is building,” he said. “As an operator, you should use all the spectrum you have, whether it’s LTE or Wi-Fi. … Customers should have the best possible connectivity, and the network should choose this part. … We have showcased our first product that offers load balancing of LTE and carrier grade Wi-FI, and more and more customers are talking about it.”
Ericsson remains the world leader in prepaid billing systems, according to Wibergh, who said that BSS will remain a very important driver of growth for the company. He said that software-defined networking and network virtualization will be increasingly important, but will not be big contributors to the bottom line in the near future.
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