By Gustav Sandstrom
STOCKHOLM—Telefon AB L.M. Ericsson, the world's largest network-equipment vendor, on Friday posted a worse-than-expected second-quarter net profit as industry component shortages hit sales, sending shares sharply lower.
Stockholm-based Ericsson said net profit for the three months to June 30 was 1.88 billion Swedish kronor ($258 million), nearly double net profit of 831 million kronor a year earlier, when results were hit by heavy restructuring charges.
Sales fell 7.9% to 48 billion kronor from 52.14 billion kronor. Analysts had expected net profit of 2.73 billion kronor on revenue of 49.81 billion kronor.
The disappointing results sent Ericsson's shares down 5.9% to 83.65 kronor on a slightly lower Stockholm market.
Component shortages hit second-quarter sales by some three billion kronor to four billion kronor, Ericsson said. Tight supply conditions have hit companies across the telecommunications-gear industry; Paris-based Alcatel-Lucent in May posted a wider first-quarter net loss as component shortages hampered its ability to transform improving demand into revenue. Rival Nokia Siemens Networks also saw its second-quarter sales hit by supply shortages that it expects to continue into the third quarter.
Along with rivals, Ericsson has suffered from weak demand in several markets in the past year as operators cut investment during the economic downturn and from price pressure in a fiercely competitive market.
"The market conditions we saw in the second half of 2009 with mixed operator behavior prevailed also in the first half of this year," Chief Executive Hans Vestberg said. "In the quarter, all regions, except North America, showed lower year-over-year sales."
Increased smartphone and laptop usage have boosted operator demand for mobile broadband, but this has only partly offset falling sales of older, voice-related equipment, Ericsson said.
Surging data traffic from smartphones and laptops has so far done little to boost overall operator spending, and competition has been tough from companies like China's Huawei Technologies Co. and Nokia Siemens Networks. The joint venture between Finland's Nokia Corp. and Germany's Siemens /zigman2/quotes/200873563/delayed DE:SIE +1.53% AG agreed earlier this week to buy the bulk of U.S.-based Motorola Inc's telecom-gear business, increasing the pressure on Ericsson in the important North American market.
Ericsson's shares surged in April when it reported a stronger-than-expected first-quarter gross margin of 36.8% due to a more profitable sales mix. For the second quarter, Ericsson reported a gross margin of 37%. Excluding restructuring costs, the gross margin rose to 39% from 36.3%.
Operating profit, meanwhile, rose to 3.02 billion kronor from 1.21 billion kronor.
While sales and net profit were weaker than expected, the gross margin was relatively strong, said Redeye analyst Greger Johansson, auguring well for its profitability if market conditions and sales improve. He said the component shortages that hit second-quarter sales should be a temporary issue.
Write to Gustav Sandstrom at email@example.com