Ericsson CFO: LTE infrastructure market still small but growing quickly in U.S.

2010 was a year of intense long-term evolution (LTE) activity for Ericsson (NASDAQ:ERIC), but it wasn’t necessarily one of significant LTE revenues. According to chief financial officer Jan Frykhammar, Ericsson was almost caught off guard by the number of global operators launching trials and exploring near-term launches of the new technology.

“I think in 2010 we were taken a little by surprise by LTE demand and LTE trial activity,” Frykhammar said. “Operators all over the world have been looking at LTE much earlier than we expected.”

That intense level of interest hasn’t yet translated into large-scale deployments and thus hasn’t had a huge impact on Ericsson’s revenues, Frykhammar said, the exception being North America. Two commercial LTE networks went live in the U.S. in 2010. Verizon Wireless (NYSE:VZ, NYSE:VOD) deployed a huge network—half of which was built by Ericsson--covering 110 million pops. Meanwhile, Ericsson customer MetroPCS deployed an LTE network throughout its smaller regional footprint, announcing today four of the five launches necessary to finalize its rollout.

Ericsson now has 16 LTE contracts in 11 countries. Top line revenues for LTE are still tiny compared to the billions in sales Ericsson is taking in for GSM and UMTS deployments and high-speed packet access (HSPA) and HSPA+ upgrades, but LTE is starting to factor in to the growth Ericsson has started seeing in recent quarters. “In North America in particular it is having some impact on revenue,” Frykhammar said.

The Ericsson juggernaut continued unabated in Q4, reporting its best quarter in two years from increased network sales. Overall revenues increased 8% year over year to 62.8 billion Swedish Kronor (U.S. $9.6 billion), though sales for the entire year were down 2%. Network sales increased 14% year over year and 40% quarter over quarter to 36.4 billion Kronor (U.S. $5.6 billion).

North America continued to be Ericsson’s biggest sales region since it closed its acquisition of Nortel’s CDMA and GSM businesses. The deal exposed Ericsson to the more than half of U.S. operators it formerly couldn’t sell equipment to, and Ericsson capitalized on its new CDMA portfolio right away winning part of Sprint’s (NYSE:S) $5 billion network modernization contract. North American sales grew 49% in the Q4 to 14.1 billion kronor (U.S. $2.1 billion) but its pace of growth has slowed some, considering it averaged triple digit growth throughout 2010.

Though both 2G and LTE’s contributions to Ericsson’s top line were small, the vendor continued to see huge upsurges in HSPA and HSPA+ deployments. In the U.S. both T-Mobile (NYSE:DT) and AT&T (NYSE:T) completed their network upgrades to HSPA+, and globally mobile broadband sales increased 40% from the 3^rd to the 4^th quarters. Unlike new network deployments, which require planting new base stations in the ground, most mobile broadband deployments require only software upgrades, a much lower-margin business than green-field rollouts. Since the LTE market will take some time to ramp up, a good deal of Ericsson’s business in 2011 will be these kinds of upgrades as well as new 2G and 3G deployments in developing markets.

Frykhammar, however, said that this kind of HSPA activity was expected. Operators deployed their original UMTS networks with the expectation they would continue to operate for about 15 years, refreshed with upgrades. Ericsson is finalizing that commitment before the next round of LTE deployments takes hold, Frykhammar said. Some 60% of all UMTS networks have been upgraded to support 7.2 Mb/s HSPA, according to Ericsson, but only a fraction have received the HSPA+ upgrade, which expands capacity to 21 Mb/s or 42 Mb/s depending on the implementation, giving operators plenty of room to expand. In the U.S. T-Mobile plans to upgrade to 42 Mb/s HSPA+ by bonding two 5 MHz-by-MHz carriers.

2011, however, promises to be a banner year for Ericsson and one that will lend a significant boost to the still-nascent LTE market. In addition to Verizon’s ongoing rollout, AT&T plans a commercial launch of LTE later this year.