Shares in Ericsson lost more than 7 percent of their value today after the Swedish wireless-equipment giant reported disappointing second-quarter results. The company said that, while its profit more than doubled from the same period a year ago, reaching $274 million, sales fell by 8 percent, to $6.5 billion.
CEO Hans Vestberg blamed the revenue decline on shortages of critical components for the wireless networks that Ericsson builds. Faced with surging demand, especially for 3G and LTE network elements, Asian suppliers have yet to ramp up production following the severe downturn of 2008-09. In a conference call with analysts, Vestberg said he expects the shortfalls to ease in the second half of the year.
Like other major vendors, Ericsson, the world’s largest supplier of telecom network equipment, has grappled with slowdowns in carrier equipment spending the last two years as well as sharp competition from new Chinese entrants Huawei and ZTE. Ericsson has made significant acquisitions to bolster its core business, paying $1.13 billion to take over the wireless network unit of failed Nortel Networks, and buying out Nortel’s stake in a joint venture with Korean electronics maker LG.
At the same time, Ericsson’s joint venture with consumer electronics giant Sony, Sony Ericsson, has continued to enjoy a turnaround. Sony Ericsson, which has benefited from the move toward more costly smartphones based on the Android operating system, made $15.5 million in the quarter, a huge turnaround from a $275 million loss a year earlier.
Watching revenues fall in its core business, Ericsson has also moved more into managed services, essentially taking over daily network operations for the world’s largest carriers. This week Ericsson said it will take over network operations and management for China Mobile in Hebei Province, China – a region of 70 million people surrounding Beijing, the capital.
The China Mobile deal comes almost exactly one year after Sprint Nextel handed Ericsson a $5 billion managed-services contract to handle day-to-day operations of the Sprint network. Ericsson now has such network management contracts with carriers around the globe including Brasil Telecom (BTM), Saudi Telecom, Hutchison Telecom in Hong Kong, T-Mobile’s U.K. division, Vodafone U.K., and Cable & Wireless, which has operations in Europe and Asia.