Ericsson profit masks shrinking cash flow

Michael Carroll
21 Oct 2011

Ericsson achieved a marginal rise in net profit during 3Q11 on the back of a 17% rise in sales year-on-year, however cash flow was hit by its under-performing joint ventures.

The vendor grew net income 6% to 3.8 billion Swedish krona ($573.7 million) on the back of high demand for mobile broadband kit and increased service revenues. However, its share of losses in its chipset joint venture ST-Ericsson increased to 700 million krona from 400 million a year ago, and its share of profit in the Sony Ericsson handset business fell from 300 million krona in 3Q10 to 100 million this year.

Cash flow plummeted from 11.8 billion krona in 3Q10 to 1.6 billion in 3Q11.

While president and chief Hans Vestberg said the firm’s performance to-date “reaffirms our indications of a strengthened global market share,” the firm’s 3Q network sales in North America, Northern Europe & Central Asia, and Mediterranean and were level or lower than in the second quarter, resulting in a 3% fall in revenue sequentially.

Sales of services provide a bright spot in the 3Q figures, growing 7% to 20.4 billion krona quarter-on-quarter. The bulk of the growth came from managed services – up 12% sequentially, but largely unchanged year-on-year – while professional services revenue grew 9% quarter-on-quarter and 7% year-on-year.

The multimedia business also made progress, with sales up 11% year-on-year and 8% on 2Q11.

However, operating margins at the networks and services businesses fell year-on-year – hitting 13% for networks and 9% in the services unit. That resulted in an overall decline in operating margin excluding joint ventures from 13% in 3Q10 to 11.3% in 3Q11.

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