LM Ericsson Telephone Company (NASDAQ: ERIC) is a multinational company engaged in manufacturing and selling wireless infrastructure equipment for the telecom sector. Ericsson is a leading provider of communications networks, related services and handset technology platforms. It is a total network solutions provider, serving wireless and wireline operators, enterprises, and consumers. The company is primarily a supplier of global system for mobile communications (GSM) based equipment, and looks to benefit to the next generation systems as more broadband content is being streamed to mobile devices, prompting network providers to upgrade their networks. GSM is the dominant wireless standard in Europe and most of the world. Sony Ericsson, the company's 50/50 mobile handset joint venture with Sony, is one of the top-five largest manufacturers of cell phones in the world.
Ericsson is a supplier of equipment, integrated solutions, multimedia applications and services to operators worldwide. The Company is a provider of communications networks, related services and multimedia solutions. Through its joint ventures ST-Ericsson and Sony Ericsson, it also provides handsets. It offers a portfolio of telecommunication and data communication systems, multimedia solutions and professional services, covering a range of technologies.
In 2009, Ericsson reported sales of SEK 206.5 billion and operating income of SEK 24.6 billion.
Second Quarter 2010 Results
During the second quarter of 2010, Ericsson reported sales declined 8% year-over-year to 48 billion SEK. Sales in Global Services were flat due to decline in network rollout although Professional Services increased 5%. Group sales increased sequentially by 6%. Operators showed a continued strong demand for mobile broadband driven by smartphone and laptop usage. However, sales were impacted by continued industry component shortages and supply chain bottlenecks. Gross margin improved year-over-year and sequentially due to business mix and efficiency gains. Cash flow declined year-over-year, mainly due to increased working capital. Sony Ericsson continued to show improved results and ST-Ericsson's transition program is on track.
Net income improved year-over-year and sequentially to 2 billion SEK, positively impacted by improved earnings in Sony Ericsson.
The Company operates in five segments: Networks, Professional Services, Multimedia, Sony Ericsson and ST-Ericsson.
The Company’s Networks segment delivers products and solutions for mobile and fixed broadband access, core networks and transmission, as well as related network rollout services. Its offering includes radio access solutions interconnect with devices, such as mobile phones, notebooks and personal computers (PCs), supporting mobile technologies, such as global system for mobile communications (GSM) and wideband code division multiple access (WCDMA) on the same platform; fixed access solutions; Ericsson’s core network solutions include softswitches, Internet protocol (IP) infrastructure for enhanced data GSM environment (EDGE) and core routing, IP multimedia subsystem (IMS) and media gateways; transmission/backhaul; micro wave and optical transmission solutions for mobile and fixed networks; related network rollout services; network management tools, and supporting operator activities for management of existing networks, as well as for introduction of new network architectures, technologies and services.
The Company’s Professional Services delivers managed services, systems integration, consulting, education and general customer support services. Its offering includes managed services, systems integration, consulting, education and customer support services. Its managed services consist of network operations and hosting of service layer platforms and applications. Ericsson integrates equipment from multiple suppliers and handles technology change programs, as well as design and integration of new solutions.
The Company’s Multimedia segment provides enablers and applications enabling operators to deliver an experience seamlessly on any device, any time and anywhere. The offerings include television solutions, which consists of end-to-end solutions for operators, service providers, advertisers and content providers; customer and business applications includes multimedia solutions for the consumer and enterprise markets; multimedia brokering solutions, which facilitate payment and distribution of content, and service delivering and provisioning platforms, which enables operators and service providers to create, sell and manage multimedia offerings and multi-play offerings.
The Company’s Sony Ericsson segment consists of the joint venture Sony Ericsson Mobile Communications. Sony Ericsson delivers mobile phones and accessories.
ST-Ericsson segment consists of the joint venture ST-Ericsson. ST-Ericsson designs, develops and creates mobile platforms and wireless semiconductors. On February 2, 2009, ST-Ericsson was formed by merging ST-NXP Wireless and Ericsson Mobile Platforms.
On June 17, 2009, the Company purchased Elcoteq SE’s manufacturing operations in Tallinn, Estonia. During the year ended December 31, 2009, the Company acquired Nortel’s code division multiple access (CDMA) and long-term evolution (LTE) operations in North America. In February 2010, the Company acquired the remaining interest in LHS AG. In April 2010, Telefonaktiebolaget LM Ericsson acquired Nortel Networks' North American global system for mobile communications (GSM) business. In June 2010, Nortel Networks Ltd. sold its 50% interest in LG-Nortel Co. Ltd., the Company's Korean joint venture with LG Electronics Inc., to Telefonaktiebolaget LM Ericsson.
Due to the economic slowdown, the market for GSM/WCDMA network equipment and related services is estimated to have declined by more than 10%. Ericsson’s sales for comparable units were down 9%, adjusted for currency and hedging effects. A decline in Networks in line with the market was partly offset by an increase in Professional Services, driven by strong growth in managed services. Reported Multimedia sales increased by 5% for comparable units.
Ericsson is the only supplier selected to participate in all major 4G/LTE projects. Ericsson provides managed services to network operators which together serve 370 million subscribers. North America is set to become Ericsson’s largest and fastest growing market as major telecom operators adopt 4G technology. Ericsson's presence in North America has been elevated as its Chief Technology Officer has been relocated to Silicon Valley.
Ericsson competes with Alcatel-Lucent (ALU), Huawei, Nokia (NOK)/Siemens, Cisco Systems (CSCO), ZTE, Juniper Networks (JNPR), Accenture (ACN), HP/EDS, International Business Machines (IBM), Tata Consultancy Services (BOM:532540), Tech Mahindra (BOM:532755), Acision, Amdocs (DOX), Comverse Technology Inc (CMVT), Harmonic (HLIT), Oracle (ORCL), Thomson (EPA:TMS), Nokia (NOK), Motorola (MOT), Samsung Electronics (SEO:005930), LG, Nec Electronics (BER:NEN), Sharp Corporation (SHCAY), Apple (AAPL), High Tech Computer (TPE:2498) (HTC), Research in Motion (RIMM), Google (GOOG) and Microsoft (MSFT).