Swedish telecom Ericsson announced on Tuesday lower-than-expected results as sales in the fourth quarter were hurt by a slowdown in its North American operations.
Ericsson, the worlds largest producer of mobile network equipment, reported a 5% decline in sales in North America.
The company said mobile operators in the region changed their priorities from building new high-speed networks to saving money in order to fund future acquisitions and spectrum auctions.
Chief Executive Hans Vestberg said that although consumer demand and mobile data traffic growth maintained a strong stance in the region, the company anticipates mobile broadband business to remain slow in the short-term.
However, the company outlined robust sales growth in the Middle East, Europe and Asia. The performance in Europe was driven by strong demand as mobile operators were looking for “network quality and operational efficiencies. “
Meanwhile, the Middle East was hit by a rapid increase in data traffic and coverage requirements for new mobile licenses, Ericsson said, which led to a higher demand for the companys services.
The strong results managed to partly offset the sales decline in North America, the companys largest market, and Ericsson reported net sales increase of 1% to SEK 67.99 billion, compared to SEK 67.03 billion reported in the fourth quarter of 2013. in comparison, analysts had projected sales of SEK 70.0 billion.
Net profit for quarter stood at SEK 4.16 billion, or SEK 1.29 per share, compared to the SEK 6.44 billion reported during the same period of 2013. Analysts had projected net profit of SEK 4.56 billion. However, last years results were lifted by SEK 3.3 billion licensing deal with Samsung Electronics.
Ericsson reported a gross margin of 36.6%, up from analysts projections of 34.5%, boosted by higher software sales and efficiency improvements. The company also said the stronger dollar contributed to results.
Ericsson said it is going to expand its cost-cutting program by SEK 9 billion. The company first announced cost reductions in November amid increased competition from old and new rivals, like Nokia, Alcatel-Lucent and Huawei.
“For the full year 2014, Ericsson showed stable sales development with solid operating margin,” said Mr. Vestberg.
Ericsson gained 0.49% on Monday and closed at SEK 102.90 in Stockholm. On Tuesday the stock initially fell to SEK 99.35, but managed to hit a day high at SEK 104.80. At 10:39 GMT Ericsson was trading at SEK 101.60, marking a one-year increase of 32.55%. The company is valued at SEK 337.09 billion.
According to the Financial Times, the 28 analysts offering 12-month price targets for Ericsson have a median target of SEK 98.00, with a high estimate of SEK 126.00 and a low estimate of SEK 78.00. The median estimate represents a 4.76% decrease from the last close price.
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