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Ericsson (ERIC - Analyst Report) reported Non–IFRS earnings (excluding losses due to divestments and exiting the telecom and power cable operations) of SEK 1.31 (20 cents) in the third quarter of 2013 compared to the Zacks Consensus Estimate of 18 cents. Earnings grew 26% year over year driven by lower operating costs and higher gross margins.


Revenues in the quarter declined 3% year on year and 4% sequentially to SEK 53.0 billion ($8.1 billion). Revenues were primarily impacted by currency fluctuations and weak sales in North East Asia as well as India.

Segment Details

Sales in Networks contracted 1% year over year and declined 5% sequentially. During the quarter, the segment was impacted by lower sales in North America. In North East Asia, GSM (Global System for Communication) investments continued to decline in China and Japan continued to be negatively impacted by currency as well as due to reduced activity since the company has almost completed a major project.

Global Services sales declined 1% year over year and 4% sequentially. The decline in revenues was primarily due to the foreign currency translation. After adjusting foreign exchange impacts, revenues grew 3% year over year driven by increased activity in North America. Demand for professional services is on the rise with operators increasing their operational efficiency and reducing operating expenses through transformation activities in the voice, IP and OSS/BSS domains.    

Support Solutions sales for the quarter contracted 29% year over year, but grew 1% sequentially. The year-over-year decline in sales was primarily attributable to divestments as well as portfolio changes and lower sales of compression technology. However, OSS sales continued to grow both on year-over-year and sequential basis.

Margins and Balance Sheet

Gross margin increased 160 basis points (bps) to 32.0% supported by lower share of network modernization projects in Europe and somewhat improved business mix. However, on a sequential basis, gross margin declined from 32.4% to 32.0%.

The operating margin for the quarter was 8.1% versus 6.7% in the prior-year quarter and 4.5% in the previous quarter. The year-on-year decline was due to unfavourable impact of currency translations. 

Cash, cash equivalents and short-term investments amounted to SEK 60.7 billion ($9.3 billion). The net cash position during the quarter decreased to SEK 24.7 billion ($3.8 billion) primarily due to increased working capital and acquisitions.

Ericsson currently has a Zacks Rank #2 (Buy). Also, some other stocks such as Motorola Solutions (MSI - Analyst Report), Novatel Wireless Inc. (NVTL - Analyst Report) and Qualcomm Inc. (QCOM - Analyst Report) carry the same rank.


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