Ericsson down as margins disappoint

Ericsson ’s (OMX: ERIC B, NASDAQ: ERIC) fourth quarter was even worse than feared. On top of the already known poor performance from joint ventures Sony Ericsson and ST-Ericsson (which posted Adjusted operating loss of $207 million on Monday), network performance was also weak. Operator spending on networks in North America and Russia has slowed markedly after a period of higher activity.

Net income was down 66% to 1.5 billion SEK despite ever so slightly higher net sales as margins came crashing down. Larger share of modernization projects in one reason for this and that is expected to continue for a couple more quarters. Operating expenses grew by 2.5% and R&D expenses were up by nearly 10% as the company invested more in China’s TD-LTE Radio Access Network and in IP as well as on the acquired LG-Ericsson operations.

Ericsson’s view is that long-term industry fundamentals are solid but short-term development is expected to be cautious in light of global economic uncertainty. The Board of Directors proposes an increased dividend of 2.5 SEK. The company expects rapid CDMA transition to LTE in 2012. Ericsson is down by 13% two hours into the session.