Ericsson Q1 2014 result: revenues dip 9%, faces tough second quarter

Telecom network equipment vendor Ericsson today said its revenues decreased 9 percent to $7.2 billion (SEK 47.5 billion), while net income increased 41 percent to $258 million (SEK 1.7 billion).

Ericsson CEO and President Hans Vestberg warned that key contracts awarded will gradually impact sales and business mix, mainly in the second half of the year.

Sales declined year-on-year, primarily in North America and Japan but partly offset by China, Middle East and Latin America. Business mix in the quarter was mainly driven by mobile broadband capacity projects.


Ericsson India

Ericsson India revenue for Q1 2014 rose 6 percent to SEK 1.7 billion. Ericsson said sales grew mainly due to network traffic growth in response to increasing smartphone penetration and data usage.

North America

The Q1 2014 revenue in North America decreased 23 percent to SEK 12.2 billion. Ericsson said lower mobile broadband coverage project activity resulted in a networks sales decline as well as lower network rollout sales, partly offset by network quality and capacity expansion sales. Network ICT transformation drives a strong professional services business, including the modernization of OSS and BSS.

Latin America

Ericsson said its first quarter revenue from Latin America increased 8 percent to SEK 3.9 billion.  It said sales increased driven by operators’ investments to increase 3G network quality as well as LTE deployments in Chile and Brazil.

Middle East

Middle East region revenue increased 22 percent to SEK 3.9 billion. Sales grew mainly driven by mobile broadband infrastructure deployments in Iraq, Pakistan and Saudi Arabia. In the quarter activities in Turkey were low and 4G deployments are delayed. Demand for professional services continued as operators seek network performance quality and operational efficiencies.

How Ericsson lost the track?
Ericsson had posted lower revenues from two large mobile broadband coverage projects in North America.

The drop in quarter-on-quarter revenue was 29 percent. This gives alarming signals to the telecom industry.

The other important fact was the reduced activity in Japan.

The company could not improve revenue despite high roll out activity in China, Middle East and Latin America.

In addition, the decline in sales impacted segment Networks as well as the Global Services network rollout business. Ericsson generated SEK 24.4 billion from networks and SEK 20.4 billion from global sales during Q1 2014.

Warning Signals

Ericsson said North America is currently characterized by telecom operator investments in capacity and quality enhancements. Ericsson is a partner to AT&T for their Domain 2.0 initiative which aims to simplify and scale their network utilizing Network Function Virtualization (NFV) and Software-Defined Networking (SDN).

The company said political unrest in parts of the Middle East and Africa and is still impacting sales. There is also an increased political uncertainty in Russia and the Ukraine. In 2013 Ericsson had SEK 5.9 billion in sales in Russia and Ukraine. The current political uncertainty has not impacted sales in the first quarter.

Baburajan K
[email protected]