The winding down of big LTE (News - Alert) engagements in the U.S. and Japan, along with pricing pressures from companies like Huawei Technologies Co., and currency swings, made the third quarter a challenging one for wireless infrastructure and services giant Ericsson (News - Alert). The company’s third quarter profit margin, at 32 percent, missed analyst estimates, which were reportedly 34 percent. And Ericsson’s shares took a major hit – according to Bloomberg, the biggest intraday decline in almost two years – as a result.
Hans Vestberg (News - Alert), president and CEO of Ericsson, said the company saw, “clear improvement on the bottom line this quarter.”
"Sales for comparable units, adjusted for FX, grew 3 percent,” he said. “Reported sales were slightly down YoY, primarily due to continued currency headwind."
Nonetheless, Johan Wibergh, Ericsson’s head of networks, was upbeat about the company’s performance and prospects in a call with TMCnet today. In fact, he said he is actually happy with the third quarter results, during which he said the company’s network business saw a 4 percent increase in organic currency-translated growth. Wibergh also mentioned that the networks business in the same quarter a year ago had a 5 percent operating margin, but that it was at 10 percent during the same quarter this year.
While Ericsson’s 4G initiatives with carriers in Japan and U.S. are slowing, there’s good growth in Europe and many other regions of the world (mostly with HSPA, according to Vestberg) and plenty of things in the pipeline, said Wibergh. One possible opportunity for Ericsson is Vodafone (News - Alert), which has stated plans to use some of the profit from its deal with Verizon Wireless to make an addition $9 billion investment to improve networks in Europe, and emerging markets like India and South Africa.
“We hope to get a piece of that business,” Wibergh told TMCnet.
Ericsson is also optimistic about its new small cell solution, Radio Dot, which Wibergh said combines the best aspects as DAS and picocell technology to deliver a solution that is both reliable, affordable and small in size. This is significantly less expensive than DAS solutions on the market, he added, has full performance and feature parity with DAS, and offers the capacity of five picocells. Ericsson did have a couple of small cell solutions that preceded Radio Dot, he said, but the company has been “restrictive” in announcing small cell solutions to date.
Radio Dot solutions are expected to be available in commercial volumes starting in the second quarter of 2014, during which time Ericsson plans to begin trials with some service providers. AT&T and Verizon Wireless (News - Alert) have stated their intentions to trial Radio Dot. And Ericsson has been “swamped by requests” from other service providers wanting to do the same, Wibergh said.
The company is also working to “optimize” its product portfolio, he said. The includes integrating the products from BelAir Networks, the Wi-Fi company it acquired last year, into the Ericsson wireless portfolio. The company also has discontinued a couple of small product lines in the area of copper and fiber cable, Wibergh said, explaining this operation had two factories, one of which was sold and the other of which was shut down.
In light of all the excitement around software-defined networking and network functions virtualization, TMCnet asked Wibergh how SDN and NFV are and will impact Ericsson’s financial standing. He responded that SDN will create a major disruption in the market, and that it will have a positive impact on Ericsson a few years forward. Ericsson also is addressing NFV for telecom, he said, but he doesn’t expect this new technology to have any major positive or negative impact on the company in terms of financials.
Edited by Stefania Viscusi
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