Ericsson's core profit lagged forecasts for a second quarter in a row, in the April-June period, as cost cuts failed to offset a weak market for telecom network gear and a parts shortage hit sales. Hans Vestberg, chief executive of the world's number one mobile equipment maker, said the parts shortage should ease during the second half.
But Ericsson shares had slumped 6.36 percent to 83.20 crowns by 1503 GMT, underperforming the European technology sector which was down 0.39 percent. "Both the revenue and earnings are a bit lower than what I was expecting and lower than the consensus as well," said Lars Paulsen, analyst at Jyske Bank. "One of the reasons is the delay in the supply chain, as we also saw in the first quarter, but still it's on the weak side."
He said telecoms operators remained wary of investing, even though firms such as Vodafone, which reported on Friday, are returning to top-line growth. "Q3 is not looking likely to change the picture," Paulsen said. Highlighting a problem also cited by rivals Nokia Siemens Networks and Alcatel-Lucent, Ericsson said an industry-wide scarcity of parts and supply chain bottlenecks sliced 3-4 billion crowns off sales in the quarter.
A general economic rebound has touched off a scramble for common parts that pits network equipment makers against a range of other manufacturers. Ericsson Chief Executive Hans Vestberg said the problem should gradually ease this year, adding the parts shortage had not lost the company business, only delayed deliveries.
Despite the profit miss, Sanford Bernstein analyst Pierre Ferragu was upbeat. Without the component shortage, sales would have been in line and profit higher than expected, he said. With growth in mobile broadband in North America, Japan and parts of western Europe strong and India set to improve after a very weak quarter, he saw upside for Ericsson.
"In the next two quarters, if the component shortage vanishes away, you will have a bit of a catch-up," said Ferragu, who has an outperform rating on the company. Ericsson trades at around 16 times earnings per share for this fiscal year versus 12.6 times for Nokia and 14 for Cisco Systems. The telecoms equipment market has begun to show signs of life, but customers' spending is well below pre-crisis levels.
Some analysts had hoped the second quarter would provide clear evidence markets were rebounding after the downturn. But Vestberg said the effects of the crisis had lingered and cost control - after deep cuts - would remain a top priority. "We don't believe that the market is growing, actually," he said, adding that Ericsson was keeping or adding market share.
Sales at Ericsson's network unit - its biggest earner - slid as operators in some developing markets stayed cautious. Nokia Siemens Networks reported on Thursday quarterly sales fell 5 percent and forecast a flat equipment market this year. Many analysts see the market staying stagnant even further out, while competition from Chinese firms Huawei and ZTE is fierce and NSN is hungry for market share. NSN announced this month it would buy Motorola's telecom network equipment business, putting more pressure on Ericsson in the US market.
Ericsson's operating profit excluding joint ventures and restructuring costs came in at 5.3 billion Swedish crowns ($715 million), below the average estimate of 5.8 billion crowns in a Reuters poll of analysts and 6.1 billion crowns a year ago. Sales fell 8 percent year-on-year to 48 billion crowns versus the Reuters poll forecast of 50.5 billion crowns, though the gross margin, at 39 percent, was well above forecasts.
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