Ericsson Q1 profit up 24 pct, still sees '07 growth

STOCKHOLM (Reuters) - Ericsson (ERICb.ST) the world's largest supplier of equipment for mobile phone networks, reported a 24 percent rise in first-quarter pretax earnings on Thursday and said it was taking market share from rivals.

The results were driven by a solid performance at its mobile phone handset division Sony Ericsson and the group stuck to its market forecast for 2007 of mid-single digit growth, around 5 percent, in the main mobile network technologies.

Its tone contrasted with the forecast of one of its main rivals, Nokia Siemens Networks (NOK1V.HE)(SIEGn.DE), which said last week its market would only grow very slightly, reported flat sales and a 48 percent fall in first-quarter profit.

Alcatel-Lucent ALU.PA, Ericsson's other large rival, saw sales drop 8 percent as it struggled to merge the French and North American parent companies.

"We have concluded another quarter with solid performance and market share gains in a stable growth environment," Ericsson Chief Executive Carl-Henric Svanberg said in a statement.

Ericsson reported pretax profit of 8.26 billion crowns ($1.23 billion) up from 6.68 billion crowns in the same period of 2006, in the middle of a wide range of analysts forecasts, but below the average expectation of 8.38 billion crowns.

The growth was backed by a strong performance at mobile phone handset unit Sony Ericsson, jointly owned with Sony Corp (6758.T), which contributed profits of 1.6 billion.

Analysts pointed to a solid gross margin, which dipped year-on-year to 43 percent from 43.5 percent, but was above the average forecast in the Reuters poll of 41.9 percent.

MARKET GROWTH

Ericsson said fixed and mobile traffic was expected to continue to accelerate over the coming years, due to increased coverage and usage, as well as new multimedia services.

This would lead to operator investments in infrastructure over the long term growing in line with historical trends of mid to high single digits, or between 5 to 9 percent, it said.

Though the report reassured that the company was managing to squeeze growth out of a tough market, its shares failed to benefit. After rising in early trade by more than 1 percent, a downgrade from UBS to neutral from buy pushed them lower.

By 0904 GMT, the stock was off 0.56 percent at 26.40 crowns.

However, JP Morgan reiterated its overweight stance on the stock, saying it expected margins to rise this year and next.

It said revenue in China was strong and was about to pick up in India and North America.

Svanberg said sales growth was mainly driven by Western Europe, and large turnkey projects in Central and Eastern Europe, the Middle East, Africa and Asia Pacific.

He said new licenses were coming out in Saudi Arabia and Egypt and expected the launch of 3G in Russia.

The company, along with Nokia, is also anticipating a share of a $5 billion contract with India's BSNL, now that a court case sparked by a legal challenge from Motorola (MOT.N) is over.

(Additional reporting by Lucas van Grinsven in Amsterdam)