* Q1 sales, operating profit fall short of estimates
* Gross margin beats expectations
* Sees recent contracts boosting sales in second half
* Shares fall almost 5 percent
(Adds share, CEO, analyst comments)
By Sven Nordenstam and Olof Swahnberg
STOCKHOLM, April 23 Ericsson, the
world's biggest mobile telecom equipment maker, missed
first-quarter sales and profit forecasts as its work to rollout
faster fourth-generation networks failed to offset the ending of
The Swedish company said on Wednesday it expected sales to
pick up as it benefits from recent contract wins, such as a
five-year deal it signed with Vodafone in February.
But its shares fell almost 5 percent, with some analysts
noting the intense price competition in the mobile telecom
equipment market where Ericsson competes with Chinese companies
such as Huawei and ZTE, as well as European
rivals Alcatel-Lucent and Nokia.
"I am generally a bit pessimistic towards Ericsson," said
Inge Heydorn, a fund manager at Sentat Asset Management who does
not own Ericsson shares. "I don't think sales will come back. I
think it's a tough market."
Ericsson said it made earnings before interest and tax of
2.6 billion Swedish crowns ($395 million) in the first quarter,
up from 2.1 billion in the same period last year, but well short
of analysts' mean forecast of 3.5 billion.
Revenue fell by 7 percent adjusted for currency swings, with
growth in China, the Middle East and Latin America failing to
offset previously flagged declines in North America and Japan
due to the ending of projects with major clients.
Ericsson has long been expected to benefit from big
investments by telecoms firms in high-speed fourth-generation
(4G) networks to cope with a surge in mobile data traffic as
consumers increasingly look to access videos on the move.
The company has supplied a majority of so-called Long-Term
Evolution (LTE) networks already in use and has the strongest
portfolio of patents for the technology in the industry.
It said on Wednesday it expected sales from such projects to
pick up in the second half of this year.
In February, Ericsson signed a deal to provide Vodafone with
network equipment and services as part of the British firm's
7-billion-pound ($12 billion) investment plan, Project Spring.
It also expects to benefit from the massive rollout of 4G
networks by the three telecom operators in China.
"We are in execution mode on 4G in China right now," Chief
Executive Hans Vestberg said on a conference call.
However, some analysts are concerned about the competition
Ericsson faces, particularly on price.
Huawei said in March it aimed to almost double last year's
record revenue by 2018, while Alcatel is battling to turnaround
years of losses and Nokia has pledged to compete aggressively
"Ericsson is the leader in an industry that is growing in
users and data traffic but not in revenues," said Bengt
Nordstrom, chief executive at telecom consultancy Northstream.
On a brighter note, Ericsson's underlying profitability
continued to improve in the first quarter.
Its closely watched gross profit margin rose to 36.5 percent
compared with expectations of 34.0 percent and 32.0 percent in
the year-ago quarter, boosted by mobile broadband capacity
projects and more software sales to some clients.
"The gross margin is offsetting somewhat the sales
disappointment," Exane BNP Paribas analyst Alexandre Peterc
At 1125 GMT, Ericsson's shares were down 4.7 percent at 82.2
crowns, the second-biggest drop by a European blue-chip stock
. At Tuesday's close, the stock had risen 10 percent
this year compared with a 3 percent drop in the STOXX Europe 600
Shares in Nokia and Alcatel, due to post results on April 29
and May 9 respectively, had fallen 6.5 and 13 percent this year.
($1 = 6.5855 Swedish Crowns)
(Additional reporting by Simon Johnson; Editing by Mark Potter)