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Jul. 25, 2009

Ericsson's stock was lower by about seven percent Friday morning after the wireless infrastucture vendor reported weaker second-quarter network sales when compared to the same 2008 period.

Ericsson CEO Carl Svanberg said the effects of the worldwide economic climate on the mobile infrastructure market are now more notable, especially in mobile markets with currencies under pressure and with a tougher credit environment.

Meanwhile, overall consumer demand for new services and Internet broadband are increasing, and wireless operators around the world increasingly are in need of professional services.

Svanberg underscored its early decision to cut costs as a good move that is paying off for the company.

Last year, it started making cuts and announced even more layoffs this past January. But its two joint ventures are not faring so well, however.

Last week, Sony Ericsson, its joint venture with Sony, reported its fourth consecutive quarterly loss. On July 20, STM /Ericsson, its joint venture with ST-Microelectronics, reported a second-quarter operating loss of $165 million.

So-called wireless infrastructure services now represent about 37.8 percent of Ericsson’s global sales. On July 3rd, Ericsson announced an outsourcing deal with Sprint Nextel that is valued at $4.5 billion to $5 billion. The contract includes the transfer of about 6,000 employees from Sprint to Ericsson.

Network sales increased in the quarter by 4 percent year-over-year but were down when adjusted for currency exchange rate effects.

Svanberg, who will leave the company in January for British Petroleum, said that Ericsson has no plans to exit either of the loss-making joint ventures.

It will be interesting to see if those two ventures eventually turn to a profit in the next two to three quarters.

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Source: Radio Shack.