January 27, 2015 / 6:52 AM / 5 years ago

Ericsson sees North American slowdown as fourth quarter sales lag forecasts

STOCKHOLM (Reuters) - Telecoms equipment maker Ericsson (ERICb.ST) expects business in its key North American market to remain slow in the short-term, with its biggest customers largely finished on building their 4G networks and saving cash for acquisitions and spectrum auctions.

A general view of an office of Swedish telecom giant Ericsson is seen in Lund, September 18, 2014. REUTERS/Stig-Ake Jonsson/TT News Agency

The cooling of the once torrid U.S. market caused Ericsson, which competes with China’s Huawei [HWT.UL], Finland’s Nokia NOK1V.HE and France’s Alcatel-Lucent ALUA.PA, to report fourth-quarter sales below expectations on Tuesday, with comparable sales down 2 percent.

Its shares fell 4 percent to 99 crowns, but remain near seven-year highs after rising 20 percent last year.

Major U.S. customers AT&T (T.N) and Verizon (VZ.N) are shifting from putting up new mobile antennas - Ericsson’s strongest area - to adding capacity via routers and software upgrades in high-density areas. And companies like Cisco (CSCO.O), Juniper (JNPR.N) and Alcatel-Lucent are stronger in those product areas than Ericsson, analysts say.

However, Ericsson’s chief executive Hans Vestberg said the company was not losing overall market share in North America, which is its biggest market, accounting for roughly a quarter of sales.

“Our position is intact. We are very strong in North America,” Vestberg said, declining to elaborate on the outlook for the market.

Meanwhile, the world’s largest mobile network equipment maker pointed to growth in the Middle East, western and central Europe and southeast Asia where operators are just getting started on building out their 4G mobile broadband networks.

Market research firm Gartner predicts operators’ spending on mobile infrastructure, including traditional radio base stations and newer items like small cells, will increase 8 percent this year to hit $43.36 billion.

“I’m surprised top-line is so weak. We are in a global 4G roll-out and Ericsson has negative sales growth,” said Sentat Asset Management fund manager Inge Heydorn, who has no stake in Ericsson.

Sales at Ericsson were 68 billion crowns in the fourth quarter, below a market forecast of 70 billion, while revenue at its networks unit, which accounts for just over half of sales, fell 7 percent on a like-for-like basis.

Operating profit fell to 6.3 billion Swedish crowns ($758 million) from 9.1 billion in the same period of 2013 but was close to the average market forecast of 6.4 billion given in a Reuters poll of analysts.

The gross margin of 36.6 percent topped the 34.7 percent expected by analysts, helped by higher software sales and efficiency gains.

To mitigate price pressures in the face of fierce competition, Ericsson said in November it was stepping up its cost-cutting programme to cut annual costs by a further 9 billion crowns by 2017.

To this end, Ericsson said on Tuesday it sees restructuring charges of 3-4 billion crowns in 2015, above the 1.5 billion last year but in line with 2013.

Rival Nokia reports fourth-quarter results on Thursday while Alcatel-Lucent reports on Feb.6

($1 = 8.3067 Swedish crowns)

Additional reporting by Eric Auchard; Editing by Louise Heavens and Greg Mahlich

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