Ericsson produced an increase in both sales and net income for the full year 2011 despite significant losses in its Sony Ericsson and ST-Ericsson joint ventures.
Net sales for 2011 were up 12% to SEK 226.9bn (£21.3bn), while net income also rose by 12% to SEK12.6bn (£1.1bn) driven by higher sales and lower restructuring charges. Sales for Q4 2011 reached SEK 63.7bn (£6bn), while net income dropped 66% on Q4 2010 to just SEK 1.5bn (£0.14bn).
Hans Vestberg, President and CEO of Ericsson (pictured), said: ‘For the full year 2011, we had a strong sales growth and an increase in net income. In the fourth quarter, however, we saw weaker development in Networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernization projects in Europe, and a higher services share.
‘Group sales in the quarter were flat year-over-year and grew 15% sequentially, which is weaker than normal in the fourth quarter. The sequential growth is mainly driven by a strong development of 32% in Global Services, while Networks sales were weak, up only 2%.’
Vestberg attributed the slow down in Networks sales to slower operator spending in North America and Russia, after a period of high investments in capacity, while elsewhere sales were affected by some increased operator cautiousness during the quarter due to uncertainties such as economic development and political unrest in some countries.
In 2011, Ericsson targeted the growth areas of mobile broadband, managed services and operating and business support systems. Software represented 23% (24%), hardware 40% (37%) and services 37% (39%) of total sales in 2011.
The company has also continued to build on its strategy to capture new market share in the network modernization projects in Europe, despite their initial lower margins. It added 70 new managed services contracts during 2011, while its acquisition of Telcordia has given it a leadership position and skilled people in the important areas of operating and business support systems, according to Vestberg.
Both joint ventures, Sony Ericsson and ST-Ericsson, reported significant losses. Mobile phone manufacturer Sony Ericsson’s sales were down 16% for the quarter to Euros 1,288m (£1,073m) and down 17% for the year to Euros 5,212m (£4,345m). Net income for the quarter showed a loss of Euros 207m (£172m), while net income for the year produced a loss of Euros 247m (£206m). Ericsson announced last year that is selling its 50% share in the JV to Sony.
ST-Ericsson, which designs mobile platforms and wireless semiconductors, saw sales drop by 29% in Q4 2011 to US$ 409m (£263m), while net income fell 31% to a loss of US$231m (£148m). Sales for the whole of 2011 slid by 28% to US$ 1,650m (£1,060m), as net income collapsed 42% to a loss of US$841m (£540m). A new CEO was appointed last year and tasked with reviewing the strategy with the objective to restore profitability.
Looking forward in 2012, Vestberg said: ‘We believe that the industry fundamentals for longer-term positive development remain solid. Short-term, we expect operators to continue to be cautious with spending, reflecting factors such as macro economic and political uncertainty.
‘We will continue to execute on our strategy which means that the business mix, with more coverage and network modernization projects than capacity projects, will prevail short-term. With our global scale and presence, as well as technology and services leadership, we are well positioned to continue to drive and lead the industry development,’ he said.