Ericsson Q1 dims hopes of quick telco gear market recovery

STOCKHOLM (Reuters): Ericsson undermined hopes of a quick upturn in the mobile telecom equipment and services market after reporting a bigger-than-expected fall in first-quarter profit on softer sales and margins.

After a tough year in 2012, Ericsson’s network unit – its biggest business – posted its first sales growth in more than a year in the fourth quarter with margins also up.

Growth in networks continued in the first quarter, but at a slower pace and margins were flat. Sales also undershot in Ericsson’s network services and solutions businesses with the company’s overall gross margin undermined by larger than expected restructuring charges.

Rival Nokia Siemens Networks saw sales fall 5% in the first quarter.

Ericsson, however, held out the prospect of a higher margin in the second half of the year.

“With present visibility of customer demand, and current global economic development, we continue to believe that the underlying business mix will start to gradually shift towards more capacity projects during the second half of 2013,” CEO Hans Vestberg said in a statement.

Contracts to increase network capacity have higher margins than contracts to expand networks.

Earnings before interest and tax, excluding the company’s joint ventures, were 2.1 billion Swedish crowns ($317.26 million), to lag a mean forecast of 3.0 billion in a Reuters poll.

Sales at Ericsson, the world number one mobile network equipment maker, were 52 billion crowns against a forecast of 53.5 billion. The gross margin was 32% against a forecast of 32.2%.