Joint ventures proved Ericsson’s undoing in the fourth quarter, with net income plunging by two-thirds compared to the final quarter of 2010 due to losses at Sony Ericsson and ST-Ericsson.
The vendor netted a profit of 1.5 billion Swedish krona ($1.5 billion) in 4Q11 compared to 4.4 billion krona in 4Q10. While the vendor places much of the blame for the fall on its struggling joint venture companies, the lower profit also reflects a drop off in business for its core telecom equipment market, with revenue at the division down 9% year-on-year.
“The sales development in networks is mainly related to North America and Russia, where the trend continued from the third quarter with slower operator spending after a period of high investments in capacity. In addition, we saw some increased operator cautiousness during the quarter due to uncertainties such as economic development and political unrest in some countries,” Ericsson president and chief Hans Vestberg explains.
However, the firm’s overall performance was also hit by a poor performance from its joint venture companies. Handset business Sony Ericsson last week revealed it slipped back into the red during 4Q11 and generated a loss of €247 million ($323.2 million) for the full year – down from a €90 million profit in 2010 - while chip venture ST-Ericsson this week revealed its losses grew from $591 million in 2010 to $841 million in 2011.
Despite the problems, a strong start to 2011 carried Ericsson through its troubled second half, leaving it with 12% growth in annual profit to 12.6 billion krona. Full year sales also grew 12%, hitting 226.9 billion Krona in 2011. Vestberg notes the firm also picked up 70 new managed services contracts during the year, and states it is now in a strong position in operating and business support systems following its acquisition of Telcordia for $1.15 billion, which completed in the final quarter.
“We believe that the industry fundamentals for longer-term positive development remain solid. Short-term, we expect operators to continue to be cautious with spending, reflecting factors such as macro economic and political uncertainty,” Vestberg states.