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May 1, 2009

In other signs that the wireless industry is getting softer, Ericsson announced its first-quarter earnings yesterday, posting a larger than expected 35 percent drop in its net profit.

The lower earnings were a direct result of higher restructuring costs and also the weak results from its mobile handset venture, Sony Ericsson. It's now the second consecutive quarter that the mobile industry is contracting.

Ericsson said net profit in the quarter was $210 million compared with $323 million in the same 2008 period.

While losses in its mobile handset division were expected, the company said its mobile broadband infrastructure division still remains strong. That segment’s sales increased about 12.1 percent to $6.11 billion from $5.39 billion in 2008.

Ericsson CEO Carl Svanberg said in a statement "the effects of the worldwide economic downturn on the mobile industry are so far somewhat limited, and we expect the situation will improve when we eventually get out of this recession."

But Svanberg was also quick to point out that some wireless operators are more cautious with longer-term capital investments and some projects have been either postponed and in some cases abandoned in markets where local currencies have weakened due to a higher impacted local economy.

“There is nothing else to do but simply to adapt ourselves to these new realities and that is why at both Sony Ericsson and ST-Ericsson there are some rather extensive cost reduction programs, in some cases 20 to 25 percent, and there’s simply no way around that,” Svanberg added.

Ericsson's share in earnings from its various joint ventures dropped to a loss of $273 million in the first quarter from a profit of $112 million in 2008.

Svanberg closed in saying that Ericsson's joint ventures, Sony Ericsson and wireless technology firm ST-Ericsson are both affected by the economic slowdown and the important drop in consumer demand for mobile handsets.

The 50-50 joint venture with ST Microelectronics, ST-Ericsson, reported an operating loss of $98 million for its first two months of operation.

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Source: Ericsson.