Ericsson posted strong results and pledged deeper savings including 5,000 job cuts on Wednesday, priming itself for market share gains in a telecom equipment sector starting to wilt under the economic downturn.
Fourth quarter earnings at the world's top mobile equipment maker beat market forecasts by almost 20 percent, contrasting sharply with recent grim newsflow in the sector, where one of the top players - Canadian Nortel Networks - last week filed for bankruptcy protection.
"We clearly see Ericsson as one of the big winners of the current recession. They've bet on the right horse in terms of technology and are the market leaders," West LB analyst Thomas Langer said. Ericsson has zeroed in on the GSM and WCDMA market for mobile equipment, which has a larger footprint than the rival CDMA standard. "But it's important to remember that this report was stellar and probably very difficult to repeat in 2009," Langer added.
Analysts expect most equipment vendors to suffer this year as companies and consumers cut spending on wireless and broadband technologies, but strong companies with ample cash are likely to get stronger, leading to a more polarised industry. Ericsson shares rose 11 percent to 62.0 Swedish crowns by 1300 GMT while those of smaller rival Alcatel-Lucent by 5.6 percent. The DJ Stoxx European tech sector was up 2.3 percent.
Ericsson, which released its results more than a week ahead of schedule in what was a fourth consecutive forecast-topping report, failed to give a specific business outlook, which gave some analysts cause for concern. Chief Executive Carl-Henric Svanberg said the global financial crisis and ensuing downturn meant it was unrealistic for the group to issue forecasts.
Ericsson's closest rivals - Nokia Siemens Networks and Alcatel-Lucent - expect the market to shrink this year as telecoms operators cap spending and Asian rivals put pressure on prices. "Their scenarios are quite realistic. (The market) could be there; it could be slightly better.
It depends a little bit on where you are exposed as well," Svanberg said in a Reuters interview after the release of the report. "I think some of our competitors are more exposed to, for example, the fixed side and fixed broadband rollouts and so on, and I think there we could very well see less spending from operators."
Ericsson, for which the still relatively buoyant Chinese and Indian markets are key growth drivers, said last year its 2009 planning was based on a flattish market for mobile telecom infrastructure and growth of more than 10 percent within mobile services. The Swedish company's quarterly net profit fell to 4.1 billion crowns ($490.4 million), but beat a median forecast of 3.5 billion from a Reuters poll of 13 analysts.
Sales rose 23 percent from a year ago - with the weaker crown accounting for less than half of the rise - reaching 67 billion crowns to beat all forecasts in the poll. The Swedish crown weakened sharply in late 2008. "Every market unit around the world in basically every country had a bit higher activity in Q4 than I think most expected," Svanberg said.
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