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 A build-out of the newest 4G/LTE networks by operators in North
America, where Ericsson makes about a quarter of its sales and
Chinese rival Huawei [HWT.UL] is effectively barred from doing
business, has supported the Swedish firm at a time of stagnation in
much of Europe.
But a period of intense investment to equip networks to deal with
huge traffic increases from on-demand video and mobile internet use
may be drawing to a close. The two biggest U.S. operators, Verizon
and AT&T, have both said they were slowing the pace of capital
spending.
U.S. operators are also facing a multi-billion dollar auction of
valuable long-wave radio spectrum next year which will improve the
reach of their networks.
Ericsson, the world number one mobile network equipment maker ahead
of Huawei and Finland's Nokia, said the focus on cash flow at large
North American customers made it harder to judge its near term sales
outlook.
"I think that is the main uncertainty for Q4," Chief Financial
Officer Jan Frykhammar told a conference call.
However, growth in the Middle East, China, India and Russia offset
the North American sales drop and helped Ericsson show its first
quarter of underlying sales growth this year.
"The trend is clear: Ericsson's biggest customers in North America
and Japan have largely completed their large roll-out programs of
LTE, and revenues are to an increasing level coming from other
markets, among them Middle East and China," said Bengt Nordstrom,
chief executive at telecoms consultancy firm Northstream.
"It will be increasingly important to grow market share in China
which by far will be the biggest LTE market for the coming 3-4
years."
SHARES SLIP
Ericsson shares were down 1.5 percent by 1100 GMT (7 a.m. EDT) after
rising as much as 2.1 percent in early trade, and underperforming
the STOXX Europe 600 Technology Index which was down 0.5 percent.
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Concerns over the fourth quarter took the shine off a positive sales
performance.
Ericsson sales were 57.6 billion Swedish crowns in the third quarter
($7.9 billion), beating a mean forecast of 55.4 billion in a Reuters
poll of analysts.
However, operating profit fell to 3.9 billion Swedish crowns
compared to 4.2 billion in the year-ago quarter and lagging a poll
forecast of 4.2 billion.
That contrasted with rival Nokia which on Thursday posted
forecast-beating results, while number four player Alcatel-Lucent
reports earnings next week.
Currency hedging contracts, higher expenses and investments weighed
on profits, Ericsson said.
"The comments from the company that the U.S. business activity
slowed down during the quarter points to further margin pressure
into Q4," Nordea said in a research note. (1 US dollar = 7.2578
Swedish crown)
(Additional reporting by Eric Auchard; editing by Alistair Scrutton
and Keith Weir)
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