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Apr. 26, 2010

Late Friday, Ericsson posted a 26.1 percent drop in first-quarter profit as some developing markets continued to push back capital spending. Nevertheless, Ericsson's profit margins improved significantly thanks to various efficiency measures taken a number of months ago which seem to have made a difference on the company's bottom line.

Globally, Ericsson's sales fell 9 percent to 45.1 billion kronor as wireless service companies in a number of developing markets were still cautious with investments, affecting the performance of the networks division in particular. The overall results missed wireless industry analysts' expectations of 48.2 billion kronor.

Overall, net income attributable to shareholders of the company in the three months ended March 31st declined to 1.26 billion Swedish kronor ($174 million), or SEK 0.39 a share, from 1.71 billion kronor, or SEK 0.54 a share, earned in the corresponding 2009 period.

Ericsson missed the consensus forecast for profit of 1.78 billion kronor.

As usual, Ericsson didn't provide any financial guidance for the balance of 2010. But it did forecast that mobile data traffic would double annually for the next 5 years and noted signs that operators' pricing models are changing to variable or tiered pricing from flat rates.

Pierre Ferragu, analyst at Bernstein, said the lack of guidance was partly due to some uncertainty in emerging markets, particularly in India, where wireless operators have suspended spending for the time being.

Overall, sales at the networks division fell about 14.2 percent year-on-year and suffered from tight industry component supply conditions.

At the same time, voice-related sales such as older 2G access networks also continued to decline. Conditions were particularly tough in Sub-Saharan Africa and South East Asia, notably.

Traditionally always more volatile, the multimedia division was the weakest in the quarter, with sales down almost 30 percent year-over-year due to continued slower sales of management solutions in Sub-Saharan Africa, the Middle East, South East Asia and Australia.

In the global services division, sales actually improved a little less than 3.2 percent year-over-year as wireless operators continued to look for methods to improve operational efficiency via managed services, systems integration and various consulting efforts.

In February, Cisco's Visual Networking Index Global Mobile Data Forecast revealed that global mobile data traffic could hit a rate of over 40 exabytes in less than four years from now. Such strong numbers should actually help Ericsson for this year and right through 2012.

This is about 3.6 exabytes a month, the equivalent of approximately 134 times of all the data traffic that has ever gone over mobile networks from their beginning in the mid-80s up until today.

Cisco's most recent study suggests that mobile video will represent 66 percent all mobile data traffic by 2014, increasing 67-fold from just last year to 2014 – the highest growth rate of any mobile data application tracked in the company's forecast.

"Overall, wireless data traffic is growing faster than most people ever expected just five years ago," said Cisco Senior Director of Service Provider Marketing Doug Webster in the report.

"The rapid consumer adoption of smartphones, netbooks, MIDs (mobile Internet devices) eReaders and Internet-ready video cameras as well as machine-to-machine applications like eHealth monitoring and asset tracking systems, are all continuing to place unprecedented demands on mobile networks, and the inherently large traffic increases they will cause."

For example, take just one country: India. Just that single nation is expected to have the highest mobile data traffic growth rate of any other country, with a staggering compound annual growth rate of well over 220 percent for the forecast period, closely followed by China with over a 170 percent rate and South Africa with a 156 percent growth rate.

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Source: Ericsson.