UPDATE 3-Ericsson Q4 sales hit by operator spending cuts

* Says network unit sales hit by reduced operator spend

* Core profit in line with forecast, helped by cost cuts

* Shares fall 2.4 percent

* CEO says too early to give 2010 outlook

(Adds CEO, analyst comment)

By Simon Johnson

STOCKHOLM, Jan 25 (Reuters) - Spending cuts by telecom operators hurt quarterly sales at mobile network maker Ericsson ERICb.ST more than expected but cost measures eased the pain from a market stalled by recession.

Last year was tough for gear makers and though the outlook has brightened somewhat, an upturn may not come until 2011.

Fourth quarter sales were 58.3 billion crowns, 2.5 percent below market forecasts and 13 percent down on the year-earlier level, the company said on Monday.

Revenue at the networks unit fell 16 percent year-on-year.

Ericsson said spending on second-generation mobile equipment slowed while volumes in faster, higher-capacity networks that can handle broadband and video had yet to compensate.

“You know, the market is weak, but one might have hoped for some recovery in Q4,” said Michael Andersson, Evli Bank.

“They’re saved by cost cuts, and that will probably be the case in 2010, so it’s in no way a disaster. But it’s hard to see any trigger in this when sales are down so much.”

Chief Executive Hans Vestberg said Ericsson held on to market share across the board and would focus on growing faster than the sector in 2010. He declined to give an outlook.

Rival Alcatel-Lucent ALUA.PA reckons the equipment market will be flat or grow 5 percent at best in 2010, while Nokia Siemens Networks [NSN.UL] predicts no growth.

Ericsson’s quarterly operating profit, excluding loss-making joint ventures and restructuring costs, was 7.5 billion crowns ($1 billion), nearly matching forecasts. [ID:nLDE60I0SO]

Ericsson shares slid 2.4 percent to 70.20 crowns at 1055 GMT, lagging the Dow Jones techology index .SX8P.

“These results show how challenging network vendors have found 2009,” CCS Insight analyst Paolo Pescatore said.

“Despite this, Ericsson remains as one of the relatively few companies to be able to survive due to its scale and legacy position in the marketplace.”


While the global environment will remain tough in 2010, Ericsson also faces fierce competition.

China’s Huawei [HWT.UL] has pinched orders on Ericsson’s home turf in recent months. [ID:nLDE5BK1C4] Rival Nokia Siemens Networks [NSN.UL] is also expected to be more aggressive in pitching for business than in recent years.

“It is a very competitive marketplace, there is no debate about that,” Vestberg told an analyst conference.

He said Ericsson had been boosted by recent purchases, including the CDMA and LTE business of bankrupt Nortel Networks NRTLQ.PK and Italian consulting and systems integration firm Pride. But large acquisitions are unlikely this year.

“The industry can change, but I don’t see anything right now,” he said in response to a question on M&A possibilities.

Vestberg also said Ericsson was wedded to its loss-making joint ventures, handset maker Sony Ericsson 6758.T and wireless chip firm ST-Ericsson STM.PA.

“ST-Ericsson is an extremely important investment for us... we are definitely committed to ST Ericsson,” he told Reuters.

“That goes for Sony Ericsson as well.”

Demand was mixed in 2009, with operators in some developing countries increasingly cautious. China, India and the United States remained strong, Ericsson said.

The company started slashing costs even before the market downturn. It said its latest programme would yield 15 billion to 16 billion crowns in annual savings from the second half, up from an initially planned 10 billion.

Vestberg said Ericsson did not plan any new cost programmes.

For an INSTANT VIEW on the results, click on [ID:nLDE60O06B] ($1=7.239 Swedish Crown) (Additional reporting by Johannes Hellstrom, Sven Nordenstam, Helena Soderpalm, Love Liman in Stockholm, Brett Young in Helsinki; Editing by David Cowell)