LM Ericsson Telephone Company (ERIC) reported first quarter 2011 net sales of SEK 53 billion ($8.68 billion) and earnings per share of SEK 1.27 (20 cents), exceeding the Zacks Consensus Estimates of $7.4 billion and 16 cents respectively.
Group sales in the quarter increased by 17% year-over-year driven by robust demand for mobile broadband and multi-standard radio base station RBS 6000. The increase in Group sales was driven by segment Networks where revenues grew 35% year over year with an EBITA margin of 20%.
Global Services segment sales declined 4% year over year primarily due to currency exchange rate effects.
Networks' sales in the quarter were SEK 33.2 billion. The increase of 35% year-over-year was an effect of high mobile broadband sales. Global Services sales in the quarter were SEK 17.4 billion, a decrease of 4% year-over-year, and 24% sequentially, primarily as a result of currency exchange rate effects. Multimedia sales in the quarter declined 1% year-over-year and 34% sequentially.
Gross margin in the quarter was flat year-over-year at 38.5% and was up from 36.6% in the previous quarter.
R&D expenses amounted to SEK 8.0 billion, up 10% year-over-year. The increase is a result of the planned higher investments in radio, such as TD-LTE and IP as well as the acquired LG-Ericsson operations.
Operating income, excluding joint ventures, increased 39% to SEK 6.3 billion in the quarter. Operating margin improved to 11.9% year-over-year mainly due to the increase in volume.
Net cash position at the end of the quarter was SEK48 billion ($7.86 billion).
Total number of employees at the end of the quarter amounted to approximately 91,500, an increase by 1,200 from Dec 31, 2010.
Headquartered in Stockholm, Sweden, LM Ericsson Telephone Company is a multinational company engaged in manufacturing and selling wireless infrastructure equipment to the telecom sector. It is a total network solutions provider, serving wireless and wireline operators, enterprises and consumers.
The company is primarily a supplier of global system for mobile communications (GSM)-based equipment, and looks to benefit from the next generation systems as more broadband content is being streamed to mobile devices, prompting network providers to upgrade their networks. Major competitors include Alcatel-Lucent (ALU) and Nokia Siemens Networks, a joint venture of Nokia (NOK) and Siemens (SI).
We currently maintain our Neutral recommendation on Ericsson, with a Zacks #3 Rank (Hold recommendation) over the next one to three months.
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