* Q4 EBIT excluding JVs 4.8 bln vs f'cast 4.3 bln
* Group sales 66.9 bln crowns vs f'cast 65.3 bln
* Net loss 6.3 bln crowns after charge on ST-Ericsson
* Shares rise 8 pct in early trading
By Simon Johnson
STOCKHOLM, Jan 31 A sales recovery at Ericsson's
key networks unit raised hopes on Thursday the
world's top mobile telecom gear maker is beginning to shake off
the global downturn.
Ericsson's biggest business, which builds mobile networks,
showed fourth-quarter sales growth - the first rise in more than
a year - helping the company as a whole to post year on year
sales up 5 percent. Margins in the unit also rose from the
The telecom equipment industry is under stress from price
pressure and lower orders as the operators that are their
clients battle a slump in consumer spending, even though
increased smartphone surfing is driving demand for
higher-capacity and higher-speed networks.
Ericsson's recent poor business mix in its networks unit of
more hardware products and fewer software sales has also hurt
the company, which is fighting tough competition from Chinese
rivals Huawei and ZTE Corp, as has its focus on gaining market
share with an eye on future contracts for network capacity
upgrades against a short-term margin squeeze in Europe.
But the fourth-quarter results showed a recovery in
networks, supporting hopes of a turnaround, with high-speed, 4G
networks in North American business and Japan driving growth.
Ericsson's turnaround fits a trend predicted by market
research group Gartner which forecasts sales of network
equipment to carriers to rise 2.3 percent to $79 billion in
2013, after falling 6.6 percent to $77.3 billion last year.
North America and Latin America will grow by 4 percent, while
Asia excluding Japan will be up 3.6 percent.
"It is encouraging, with a solid gross margin, Networks back
to growth and a margin improvement," said Alexandre Peterc,
analyst at Exane BNP Paribas, regarding Ericsson's figures.
"They guide for capacity project increasing in the second half,
which is bound to be good for margins."
Increasing capacity in networks requires new software which
has bigger margins than the hardware Ericsson sells when
operators build geographical network coverage.
Ericsson shares surged on the earnings news, gaining 8.9
percent by 0814 GMT to 74.90 crowns, the highest share price
since August 2011.
Ericsson was hit by a 8 billion-crown charge for loss-making
chip set joint venture ST-Ericsson, which pushed it into a net
loss of 6.3 billion crowns for the quarter.
Ericsson's earnings before interest and tax, excluding joint
ventures and including restructuring charges, rose to 4.8
billion crowns from 4.1 billion to beat a mean forecast of 4.3
billion in a Reuters poll. Group sales reached 66.9 billion
crowns, against a forecast 65.3 billion.
Ericsson is looking at its options for ST-Ericsson, which
could include a sale, though it is likely to keep the modem
business. Its partner, STMicro, plans to exit.
BETTER BUSINESS MIX
With revenue and profit growth at telecoms operators
stalled, some analysts have wondered whether margins and network
sales would recover at Ericsson or stay depressed.
The earnings report could ease such doubts. Ericsson expects
the impact of less profitable network contracts in Europe to
wash out in 2013, part of a market share push, and a shift
broadly to more profitable contracts this year.
"With present visibility of customer demand, and with the
current global economic development, (the) underlying business
mix is expected to gradually shift towards more capacity
projects during the second half of 2013," Ericsson CEO Hans
The results chime in with a turnaround at rival Nokia
Siemens Networks. The 50-50 joint-venture between
Nokia and Siemens reported a strong increase in sales and
profits for the fourth quarter.
Like Ericsson, Nokia Siemens is fighting to reduce
costs to offset the global slowdown, aiming to find 1 billion
euros in cost savings.
Ericsson has said it would cut 1,550 staff, mainly in
networks, adding on Thursday it would keep a focus on costs.
Rival Alcatel-Lucent is cutting around 5,000 jobs
and exiting unprofitable markets to find 1.25 billion euros
($1.5 billion) in savings.
China's second-largest telecom equipment maker ZTE Corp
issued a profit warning in January.
Huawei Technologies Co Ltd, the world's No.2 telecom
equipment maker, bounced back from a disappointing 2011 with a
33 percent rise in net profit for 2012.