Ericsson Beats Estimates

LM Ericsson Telephone Company (ERIC - Analyst Report) reported earnings per share of 16 cents for the third quarter of 2009, exceeding the Zacks Consensus Estimate of 12 cents per share.

Net sales in the third quarter were SEK 46.4 billion ($6.6 billion). Sales in the quarter decreased 4% year-over-year for comparable units, i.e. excluding Ericsson Mobile Platforms, and decreased 12% adjusted for currency exchange rate effects and hedging. The third quarter last year was comparatively strong with no normal seasonality.

Sequential sales decreased 11%, negatively impacted by currency exchange rate effects, seasonality and a reduced scope of the renewed managed services agreement in Italy.

Network sales in the third quarter declined year-over-year by 8%. Even though the comparison is tough with last year's strong third quarter, the market was weaker. The markets are fairly strong in the world's leading economies, while demand is weaker in several emerging markets affected by the present economic climate.

Professional Services sales increased 9% year-over-year. Growth in local currencies amounted to 4%. Total service sales, including network rollout, now account for 40% of Group sales. In the present financial climate there is strong demand for services targeting the operational efficiency of operators such as managed services and consulting.

However, managed services sales increased by just 3% year-over-year due to the reduced scope of the renewed agreement in Italy. Other professional services sales increased by 11% year-over-year.

The gross margin, was flat sequentially despite the lower sales, and decreased only slightly year-over-year to 36.2%.

Ericsson is a world-leading provider of telecommunications equipment and related services to mobile and fixed network operators globally. Over 1,000 networks in more than 175 countries utilize its network equipment and 40 percent of all mobile calls are made through its systems. It is one of the few companies worldwide that can offer end-to-end solutions for all major mobile communication standards.

We currently have a Neutral recommendation on ERIC.