Ericsson reports profit leap as shares slump

Swedish telecom equipment maker Ericsson reported on Thursday a 65 percent rise in net profit in the second quarter on strong sales, but fell short of expectations and its shares dropped by nearly seven percent. The group said that the strength of the krona and restructuring costs had held profits back to 3.12 billion kronor (342 million euros, $488 million). Analysts polled by Dow Jones Newswires had expected a figure of 3.92 billion kronor. The cost of job cuts in Sweden, affecting 500 sales and administrative positions, had reduced the net figure by 1.3 billion kronor. The group revised upwards by half the cost of restructuring for the year from 2.0 billion to 3.0 billion kronor. The group employs 98,000 people, 10,500 more than 12 months ago, and leads its market, ahead of the German-Finnish group Nokia Siemens, the French-US firm Alcatel-Lucent and the rising Chinese manufacturers Huawei and ZTE. Ericsson said that its sales in the second quarter rose by 14.0 percent from the equivalent figure last year to 54.77 billion kronor, in line with expectations. Operating profit rose by 41.0 percent. The price of Ericsson shares dropped by 6.91 percent in initial trading to 85.55 kronor in a stable over market. Ericsson had announced a strong improvement in performance from last year in the first quarter of this year. Existing mobile phone networks are becoming saturated with traffic for mobile internet devices and smartphones which use 10 times more capacity than conventional mobile telephones. Telecom operators are turning to equipment providers to increase capacity. Chief executive Hans Vestberg said that strong growth in recent quarters was continuing, notably in Brazil, China, Germany, South Korea, India and Russia. But sales in North America, the company's biggest market accounting for 22.0 percent of sales, fell by 6.0 percent, and sales in western Europe fell by 2.0 percent and also in the Mediterranean region by 2.0 percent. Vestberg acknowledged that the overall outcome was mixed. Excluding the effect of currency factors, sales rose by 27.0 percent on a 12-month comparison, but the rise of the krona reduced this to 14.0 percent.