LM Ericsson Telephone Co. (ERIC)

Q3 2010 Earnings Call

October 22, 2010 08:00 am ET

Executives

Ase Lindskog - VP, Head of Corporate. Public and Media Relations

Hans Vestberg - President and CEO

Johan Wibergh - EVP and Head of Business Unit Networks

Jan Frykhammar - EVP, CFO and Head, Group Function Finance

Analysts

Edward Snyder - Charter Equity Research

Rod Hall - JPMorgan

Mark Sue - RBC Capital Markets

Alexandre Peterc - Exane BNP Paribas

Richard Kramer - Arete Research

Anuj Krishan - UBS

Stuart Jeffrey - Nomura

Pierre Ferragu - Sanford Bernstein

Matthew Hoffman - Cowen

Zahid Hussein - Citigroup

Kulbinder Garcha - Credit Suisse

Kai Korschelt - Deutsche Bank

Mark McKechnie - Gleacher & Co

Presentation

Operator

Ase Lindskog

Compare to:
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Thank you, operator, and hello everyone, and welcome to our call today. With me here today I have Hans Vestberg, who is President and CEO of Ericsson; also Jan Frykhammar, who is our Chief Financial Officer, and Johan Wibergh, Head of our Business Unit Networks.

Before we open up our presentation, I must remind you that during the call today, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions which are subject to risk and uncertainties. Keep that for remind that the actual results may differ materially due to factors mentioned in today's press release as well as discussed in this conference call. I would also like to encourage you to read about these risks and uncertainties in our earnings report as well as our Annual Report.

And with this said, I would like to hand over now to Hans Vestberg who is our first speaker today.

Hans Vestberg

Thank you, Ase. Yes we will briefly go with the material together here, me Johan and Jan and then we will of course open up for questions. Let me start with the sales, sales ended in the third quarter of SEK 47.5 billion, that was sequentially basically flat and year-over-year up 2%. If we make it more comparable units, it was down 5%, its comparable unit and adjusting for currency. So all-in-all, it has less of an impact, negative quarters that we have had earlier. We have had four quarters of negative growth; this was the first quarter in the four quarter that we've actually had a positive growth of 2%.

Even though. it's small it's an important one for us and if you look at the segments and we will come back to them but the basically it was Networks with Mobile broadband, that's growing well and Global Services continuing to show good growth, both of course are impacted by currency as well where we see professional services of course in local currency being up 10%. We will talk later on and Johan will talk about the component shortage that we talked about in the second quarter, where we are already then said we will have an impact in the second half of 2010.

On the other hand we said also we should see some gradual improvement. So we will come back to that, multimedia, I will come back to that as well, but multimedia stay on the same pattern as before with negative growth of some 30%. So we will come back to that as well. So Johan, let's hear about networks.

Johan Wibergh

Thank you Hans. So sales grew in the quarter with 6% year-over-year and it's been driven by mobile broadband and that's specifically very much related to the success of iPhone and broad based devices and especially a strong market for US and Japan, but there's also of course a correlation to where smartphones are growing. If we had a positive impact from the acquired Nortel business and its CDMA, EV deal and same connection to mobile broadband there before.

And 2G sales picked up somewhat in India and China, but we have still overall slow voice sales. As we said in the second quarter we would then have an impact on the second half of the year from components shortages. It has eased somewhat, but we still have an impact of SEK 2 billion to SEK 3 billion due to component shortages.

Margins have improved as you saw and the strengthening is basically coming from business mix. We have a favorable product portfolio and but also the cost savings we have been doing and then also as we usually in third quarter, we have a seasonally low operating expenses. Hans, back to you.

Hans Vestberg

If we talk about the global services, then up 3% for the whole global services. We see a slow Network rollout business is very much connected to that, we have less of turnkeys contracts at the moment and we have had that for a while right now. So it's no news in that, but professional services continue to grow in local currency with 10% and we can also say that Managed Services continued to a very good growth, up 46%. However there, we need to remember that this is the last quarter where we have spring in the current quarter but not in the previous year's quarter and the fourth quarter will be more comparable.

Still good growth and we signed up from 13 new Managed Services contract in the quarter which eight of them was renewals. The margins on Global Services basically stayed stable, a little bit up. The same goes for professional services and then a (inaudible) of 16%. So very good stability on the margin side and the growth side. And on the margin development, we see some impact from the supply chain, both the mix as we need to go out and do installation a couple of times so that is not the concern [ph]. Some on the other hand is less of turnkey project. So those are sort easing of each other.

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