Ericsson misses badly

Ericsson (OMX: ERIC B, NASDAQ: ERIC) reported quarterly numbers that missed analysts’ profit expectations by a country mile. Sales increased slightly to 55.3 billion on the heels of strong growth in services offering. Much of that was offset by declining networks sales particularly slower CDMA equipment sales and overall weak development in China and Russia. Network modernization projects in Europe are delivering very poor margins and gross margin fell sharply sequentially (37.8%) and even year-on-year (33.3%) to just 2%. The effect is supposed to lessen as the year goes on. EBITA margin excluding joint ventures and Sony Ericson sale was 8% while net income of a mere 1.2 billion leaves investors with a quarterly EPS of 0.78 SEK (0.11 USD).

Dagens Industri writes that analysts’ consensus EBIT was 2.5 billion vs. the actual 1.8 billion. Cash flow from operations was negative as high working capital level is carried due to ”late invoicing”. The situation with ST-Ericsson, a mobile platform and wireless semiconductor solutions providing joint venture of Ericsson (OMX: ERIC B, NASDAQ: ERIC) and STMicroelectronics (NYSE:STM) was called challenging. Its sales have dropped considerably due to a significant drop in sales to a single large customer (likely Nokia (OMX: NOK1V, NYSE: NOK) and continued decline in legacy products.