Ericsson more than doubles profit in Q2

[July 23, 2010]  STOCKHOLM (AP) -- Swedish wireless equipment maker LM Ericsson AB said Friday its net profit more than doubled in the second quarter, boosted by improved margins and a dramatic cut in costs as its savings plan reached its completion.

Net profit for the three-month period reached 1.9 billion kronor ($258 million), up from 831 million kronor in the same three months a year ago.

Operating costs were reduced by nearly 1 billion kronor in the April-June period, to 14.9 billion kronor.

Stockholm-headquartered Ericsson said revenues dropped, however, to 48 billion kronor, compared with 52.1 billion kronor in the second quarter in 2009.

The company blamed the plunge in sales to continued shortages in industry components as well as bottlenecks in the supply chain. Ericsson estimates these problems to have hurt second-quarter sales by between 3-4 billion kronor.

Its gross margin jumped, to 37 percent from 33.8 percent. The improvement was attributed to a better business mix as well as efficiency gains.

The company also said its extensive savings program, launched in the first quarter last year, has now been completed and has reached its target. The plan is expected to accumulate 15-16 billion kronor in annual savings at a cost of around 15 billion kronor.

Ericsson CEO Hans Vestberg said mixed behavior in operator investments continued in the quarter, where all regions, aside from North America, showed lower sales year-on-year.

But, he said, "sequential sales showed a more mixed picture with growth in regions such as the Mediterranean, North America, Northern Europe and Central Asia, as well as Sub-Saharan Africa."

Greger Johansson, an analyst with research firm Redeye, said the report was worse-than-expected, especially on the sales line, but that the gross margin was a nice surprise. "It was clearly better," he said, adding that although sales were disappointing in the quarter, it is likely that this picture will change as the troubles in the supply chain ease.

On Thursday, the world's top mobile phone maker, Nokia, reported a 40 percent plunge in second-quarter profits, to euro227 million ($290 million), amid falling market share and flat sales.

With more than 85,000 employees worldwide, Ericsson is one of Sweden's biggest companies and has long been a key global supplier of fixed and mobile phone networks.

[Associated Press; By LOUISE NORDSTROM]

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