Sony Ericsson Reports $931 Million Profit Thanks to Nortel Acquisitions; Sales Up in China and US
Beating analyst’s expectations by more than 12%, Sony Ericsson is looking good heading into the fourth quarter despite sales dropping almost $223 million in the third.
While markets in Europe didn’t meet sales or total revenue expectations, stockholders didn’t seem concerned, and they’re probably right. Most of Sony Ericsson’s profit came thanks to its latest Nortel acquisitions and one of those acquisitions, the MSS Passport product line, didn’t even figure into the third quarter calculations. It will be the fourth quarter that will really show where Ericsson sits. Since dumping its former Symbian operating system in favour of the new Google Android, Sony is trying to stay on the cutting edge of mobile devices and are aiming to be a strong competitor in the still Nokia-dominated smartphone world. Like Nokia, however, the profit increases are coming at the expense of job cuts, with more planned for the upcoming year.
With increased sales expected for the fourth quarter when component shortages hopefully ease and Christmas shopping kicks in, the big markets of China and India will play large roles in determining whether or not Sony Ericsson’s new acquisitions are all they’re cracked up to be, as the Ottawa Citizen reports below:
Ericsson profits jumped more than fourfold to $931 million in the latest quarter on cost cutting and the impact of more than $1.3 billion in Nortel Networks acquisitions.
The shares of the Swedish giant of the wireless world rose sharply Friday after the company reported stronger than expected profits for the third quarter ending in September.
Ericsson enjoyed the benefits of significant layoffs in its own operations and growing profits in a Sony Ericsson wireless handset business.
But it was the addition of Nortel product lines, particularly in North America where sales rose 223 per cent compared with a year earlier. As major carriers prepared for next generation wireless technology, Ericsson is reaping the benefits of a dominant position in the major legacy wireless platforms with the addition of Nortel’s strong market position in CDMA and with big customers like Verizon.
With more than 750 employees now in Ottawa, Ericsson and Rogers Communications will use the Ottawa market and research operation to test the fourth-generation LTE technology for the Canadian market.
The strong U.S. performance offset a disappointing sale results in most other markets, including the key European markets, where sales were down sharply from a year earlier and now trail North American sales.
The other bright spot for Ericsson was China, where sales rose 24 per cent compared with a year earlier. Otherwise, Ericsson had another weak quarter overall, with revenues up just two per cent to $7.2 billion and missing analysts’ expectations by a small margin.
Without the Nortel products, Ericsson said sales would have declined five per cent.
Nokia Siemens Networks, a much weaker rival, just reported a seven-per-cent increase in sales in the same quarter.
Ericsson blamed a shortage of parts for shaving sales by about two per cent .
“The situation has gradually improved during the quarter but it remains a challenge to fully meet the demand for mobile broadband,” chief executive Hans Vestberg said in a statement.
“While the supply chain bottlenecks have been resolved, the industry-wide component shortage remains.”
Ericsson continued to not provide any guidance for global results but said that it expects stronger sales in Japan and India. It also expects carrier planning to start generating significant equipment sales in other markets in the future. While the Sony-Ericsson handset joint venture appears on track to recovery, the ST-Ericsson wireless chip joint venture continues to lag with growing losses and declining sales.
One weak spot in the Nortel acquisitions was the joint venture in Korea with LG Electronics, a cash cow for Nortel in its darkest days.
Ericsson said the new LG Ericsson venture had a slow quarter because phone company delayed spending while they consider next-generation plans.
Investors appeared not to care about the revenue performance, sending shares up more than six per cent in European trading on the significant profit turn around, which beat analysts’ expectations by more than 12 per cent.
Ericsson plans $200 million in fourth-quarter cost-cutting, up more than 60 per cent from the September quarter.
Ericsson bought Nortel’s MSS Passport product line for $65 million last month and the sale did not figure in these results.
