networks unit recovers, shares rally
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[July 18, 2014]
By Sven Nordenstam and Olof
(Reuters) - A recovery in Ericsson's network equipment business
pointed to strong results for the rest of the year, propelling its
shares toward their biggest daily gain in more than three years.
In China, Ericsson is selling equipment for a massive rollout of
fourth-generation mobile networks. In developed markets, it is
benefiting from capacity upgrades as network operators cope with a
surge in mobile data traffic.
Ericsson expects recent contract wins to boost revenue during the
second half of the year.
"To us, industry fundamentals will strengthen as mobile broadband
networks mature, allowing Ericsson and its peers to present higher
profitability," ABG Sundal Collier said in a research note,
repeating a "buy" rating on Ericsson shares.
Comparable sales in networks grew 5 percent to a forecast-beating 29
billion crowns, the fastest growth for the unit in a year, following
a 10 percent drop in the first quarter.
"After a slow start of the year, we are executing on previously
awarded 4G/LTE contracts in Mainland China and Taiwan," Chief
Executive Hans Vestberg said on Friday.
Ericsson's figures bode well for smaller peers Nokia and
Alcatel-Lucent, which report earnings this month. Demand was robust
in North America, where Alcatel-Lucent is particularly present.
Ericsson shares were up 8.1 percent at 0943 GMT (5.43 a.m. EDT) .
Shares in Finland's Nokia were up 2.6 percent whereas Paris-based
Alcatel-Lucent shares rose 4.0 percent, putting the trio among the
top six performers in the European FTSEurofirst 300 index.
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Operating income was 4.0 billion Swedish crowns ($585 million)
compared to 2.5 billion in the year-ago quarter, beating a mean
forecast of 3.7 billion in a Reuters poll of analysts.
Sales were 54.8 billion crowns against a forecast of 52.5 billion,
down by 1 percent from the year-ago quarter on a comparable basis -
a much smaller decline than the 7 percent fall in the first quarter.
Ericsson's gross margin, a measure of underlying profitability which
is keenly watched by analysts, was 36.4 percent against a mean
forecast of 35.4 percent.
Nokia reports results on July 24, and Alcatel-Lucent a week later.
(Additional reporting by Leila Abboud in Paris and Vikram Subhedar
in London; editing by Tom Pfeiffer)
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