Ericsson has reported that net sales for the fourth quarter of 2007 were flat on 2006 sales, at €5.75 billion, putting its full year sales up 4% on 2006. But fourth quarter net income fell to €591 million from €1 billion, and Ericsson will slash €422 million annual expenses by 2009, cutting 4,000 jobs, and will take charges totaling the same amount.
The equipment maker said year-over-year sales for the quarter were flat due to less spending from operators on network infrastructure and a the weak dollar – about 50% of its sales are US dollar related. It said that in "constant currencies", estimated organic growth was 8%.
Although there was a decline in gross margin year-over-year, this was due to a shift in the business mix, with a high proportion of new network builds and less expansions and upgrades, and the ongoing shift to new switching technologies.
Operating income amounted to €800 million, (down from €1.2 billion in 2006) in the quarter and SEK3.2 billion (down from €3.7 billion) for the full year. Operating expenses amounted to €1.6 billion in the quarter which Ericsson put down to “seasonality and newly acquired companies”. Ericsson acquired Redback, Drut Corp, LHS and Entrisphere in 2007.
Analysts said a downbeat report from Ericsson had been expected, but focused on one particular area where Ericsson looked soft — the company's multimedia division.
"In the P&L there's one weak spot and that's the multimedia division with much bigger losses than the consensus was looking for," Thomas Langer, analyst at WestLB. Tol the Washington Post. "Everybody was looking for a small operating profit."
Overall, sales of 54.5 million crowns were slightly better than forecasts of 53.8 billion. Ericsson had announced in October it expected sales in a 53 billion to 60 billion range, but later said it expected them to come in at the lower end of that range.
"The market growth, however, slowed during last year and for 2008 we find it prudent to plan for a flattish mobile infrastructure market. We will … reduce our cost base to safeguard our competitive position," ceo Carl-Henric Svanberg said.
Networks
Sales in Networks declined by 4% in the quarter, year-over-year. For the full year sales grew by 1%. During the second half of 2007, Ericsson said sales were affected by the shift from capacity expansions and software upgrades to new network build outs. Network rollout services increased 61% sequentially, reflecting the higher proportion of large network build out projects.
Professional Services
Sales in Professional Services grew by 15% in the quarter year-over-year and by 16% for the full year. Managed services and systems integration showed the fastest growth. Operating margins remained stable at 15%.
Ericsson also revealed that the network sharing deal between T-Mobile and 3 UK will reduce the scope of its network management deal wth 3UK.
Multimedia
Sales growth amounted to 7% in the quarter year-over-year and 14% for the full year. Operating margin in the quarter was negative 9% and just below break-even for the full year. “Multimedia is in a build-up phase,” Ericsson said.
Western Europe sales declined by 10% in the quarter year-over-year and 1% for the full year. Ericsson said the softer development was mainly driven by temporary effects from operator consolidation in the UK and Italy.
Central and Eastern Europe, Middle East and Africa sales were flattish in the quarter and increased 5% for the full year. Sales were mainly driven by network rollout and expansions. 3G rollouts have started in large number of markets in Central Europe.
The company said it forecasted a flat market in 2008, with better growth thereafter.