Ericsson (ERIC) saw sales slide 9% during the first quarter as the pace of mobile network buildouts slowed for two of its major North American customers. Although the company did not name those customers, AT&T and Verizon Wireless are both Ericsson customers who got an early start on both 3G and LTE, and are now in the latter stages of their buildouts. In the near-term, those Tier 1 carriers will focus on adding capacity and increasing network efficiency, and therefore Ericsson is moving quickly into small cells and network software.
The world’s largest vendor of telecom infrastructure also cited reduced activity in Japan as a reason for the sales slip. Ericsson said this weakness was partially offset by strength in China, the Middle East and Latin America.
Ericsson’s Q1 sales of 47.5 SEK ($7.2 billion) were off 29% from the fourth quarter, and down 9% from the year-ago quarter. The good news was margin improvement. The company’s operating margin rose to 5.5% versus 4.0% in the year-ago quarter, driven by mobile broadband capacity sales and lower restructuring charges. Margins declined quarter-on-quarter, due to a one-time gain in Q4 2013 related to the settlement of a patent lawsuit with Samsung.
Ericsson’s Johan Wibergh, head of the company’s networks business unit, said that as projects near completion Ericsson’s expenses go down along with those of its customers, boosting profits and margins. Wibergh said that during the next 6-12 months his focus will be twofold. The first priority, he said, will be “taking care of the core business. We are really strong in mobile networks and related [areas], but also growing in new areas.”
Those new areas are Wibergh’s second area of focus. They include IP networks, SDN (software defined networking), cloud, OSS/BSS, and IPTV. Wibergh said that among all those initiatives, his two top priorities now are IP and the cloud. He noted that AT&T selected Ericsson as a partner in its Domain 2.0 initiative which aims to simplify and scale the network by utilizing NFV and SDN.
Wibergh also emphasized the continuing strength of Ericsson’s core business. Earlier this year, Ericsson announced that Vodafone has awarded the vendor a five-year contract as part of Project Spring, which will upgrade Vodafone’s 2G and 3G networks to 4G.
Ericsson’s business mix is shifting somewhat in the United States. The company is not an equipment vendor for Sprint Spark, which is just getting underway, but it is continuing to manage Sprint’s network, including Sprint Spark.
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