Ericsson Management Discusses Q2 2012 Results - Earnings Call Transcript

Ericsson (ERIC)

Q2 2012 Earnings Call

July 18, 2012 8:00 am ET

Executives

Åse Lindskog - Head of Investor & Analyst Relations and Vice President

Hans Vestberg - Chief Executive Officer, President and Director

Johan Wibergh - Executive Vice President and Head of Business Unit Networks

Magnus Mandersson - Executive Vice President and Head of Global Services Business Unit

Jan Frykhammar - Chief Financial Officer, Executive Vice President and Head of Group Function Finance

Analysts

Edward F. Snyder - Charter Equity Research

Mark Sue - RBC Capital Markets, LLC, Research Division

Sandeep Deshpande - JP Morgan Chase & Co, Research Division

Achal Sultania

Stuart Jeffrey - Nomura Securities Co. Ltd., Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Francois Meunier - Morgan Stanley, Research Division

Kai Korschelt - Deutsche Bank AG, Research Division

Richard Kramer - Arete Research Services LLP

Presentation

Operator

Welcome to the Ericsson Analyst and Media Conference Call for the Second Quarter Reports. To view visual aids for this call, please log onto www.ericsson.com/press or www.ericsson.com/investors. [Operator Instructions] As a reminder, a replay will be available 1 hour after today's conference. Åse Lindskog will now open the call. Thank you.

Åse Lindskog

Thank you, operator, and hello, everyone. You are all welcome to our call today, where we will run through our second quarter report. And with me here today, I have Hans Vestberg, our CEO and President; Jan Frykhammar, our Chief Financial Officer; Johan Wibergh, Head of Business Unit Networks; and Magnus Mandersson, who is Head of Business Unit Global Services.

To start with then, I have to make the usual reminder 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. The actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. I encourage you to read about these risks and uncertainties in our earnings report, as well as in our annual report.

And so with this said, I would like to hand over the call to Hans Vestberg.

Hans Vestberg

Thank you very much, Åse. Hello, everyone. Let me be brief on the key developments in the quarter as many of you probably listened to the press conference and have read our materials. But in the quarter, we are continuing to stay very close to our customers.

And as I mentioned early this morning as well, the last 45 days, we and the executive team, including myself, we have talked to 100% of our revenue base to understand where the market is going, and we don't see any major changes since the first quarter. And remember, in the first quarter and the fourth quarter last year, we said that in the markets where there are some macroeconomical uncertainties, we see, more quarters, operators when it comes to investments for that is the same sort of prevailing in the quarter. But we are not seeing any change to what we talked about in the first quarter.

But important for us is to stay close to the customers in these times, to understand how they will act in this market. When it comes to market with political uncertainty, there is no change there, neither the market that has political uncertainty or by -- for practical reasons, not doing much investments, and that will, for a while, continue. And that's predominant in markets in Middle East and in Northern Africa. But there's no news on that. It's basically the same as in previous quarters.

The customer dialogue has been very much around network performance and quality of the networks as that is becoming key differentiator. Spectrum, with the expected data growth, of course, spectrum will be important point to have both more of, but also doing it more efficiently in the radio technology. And then very high on the list is monetizing the mobile broadband with tiered pricing and quality of service, driving a lot of changes in the OSS and BSS. And finally, we have added for quite a while, that's, of course, efficiency, discussion and focus more our customers very much when it comes to both network sharing, outsourcing and other types of efficiency gains by using our service or product portfolio.

Looking at the quarter, I will be brief here. Growth of 1% year-over-year, down 6% year-over-year for comparable units and adjusted for foreign exchange, that's basically the same as we had in the first quarter. We had a sequential growth of 9%, and the normal seasonality, which is normal seasonality is around 5. We will come back, but both Global Services and Support Solution had a strong quarter and are now contributing to around 50% of the turnover in the quarter of Ericsson. In Networks, Johan will come back, but here, we have the expected impact of the equipment sales of CDMA that is declining and then we had the weaker sales in the quarter in China and Russia.

If you then look at the profitability, the core Ericsson had a profit of SEK 3.3 billion, net income SEK 1.2 billion, clearly down from last year driven by Networks, with the profitability of Networks, but also that we have a wider loss in ST-Ericsson year-over-year, not sequentially but year-over-year, leading to earnings per share of SEK 0.78 in the quarter compared to SEK 1.60 last year. And of course, here, we need to remind you that Q1 included a onetime effect of the gain from the divestment of Sony Ericsson by SEK 7.7 billion.

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