Jul 21, 2011 1:10 PM,

Ericsson sees slight U.S. slow-down despite solid mobile, services outlook

By Rich Karpinski

Perhaps because its last few quarters were so strong – not to mention the move to fold restructuring costs into this quarter – Ericsson’s earnings disappointed, causing its shares to fall today. But ‘fundamentals’ in its network business remain strong, company says.

It can be difficult to sort out the macro-economic and geo-political impacts from the industry-specific trends when it comes to divining the financial health of large global vendors like Ericsson. Coming up short on profits and weighted down by large restructuring charges taken in the quarter, Ericsson reported “disappointing” profits this morning and saw its stock slide.

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Looking deeper, Ericsson’s North America business did post a 6% overall decline in second-quarter sales. But its growing networks unit remained strong, with sales up 31% versus the previous year as demand for mobile data services continue to grow at U.S. carriers.

In an interview with Connected Planet, Ericsson CFO Jan Frykhammer said the vendor is starting to see “a little bit, in the quarter, a slow-down in [its] network business,” particularly compared to recent quarters in the U.S. However, he added “I don’t think one should read too much into it. If you look at the global picture, and this is visible in our top-line numbers as well, the fundamentals around mobile broadband continue to be very strong.”

Several factors will impact future mobile growth in the U.S, Frykhammer. Beyond the economy, the sector is awaiting word on the proposed AT&T-T-Mobile merger, he said. The other big question is “when will CDMA start to decline, because sooner or later it will,” he said, accelerating already strong operator movement here to 4G technologies like LTE.

In addition to that expected 4G growth, Ericsson is benefitting from the ongoing trend of telecom operators outsourcing larger portions of their networks to large global players. “We’ve started to see the second, third or even fourth wave of managed service agreements,” Frykhammer told Connected Planet.

Ericsson recently signed several such services contracts with Vodafone in Europe and Telefonica in Brazil. Today, it announced an agreement to manage Bharti Airtel Ltd’s mobile phone network in Africa for five years for an undisclosed sum.

Overall, Ericsson’s second-quarter net income was 3.12 billion kronor ($488 million), coming in below analyst expectations. Revenue rose 14 percent to 54.7 billion kronor in the period, a tick below consenus numbers.