Mobile phone network giant Ericsson reported first-quarter earnings and profitability below expectations this morning due to costs from its takeover of Marconi and the start up of new contracts.
The group reported pretax profit of 6.7 billion crowns ($888 million), below the average of forecasts in a Reuters poll of 7.5 billion crowns and flat on the first quarter of 2005. It was a drop of 34 per cent from the fourth quarter of 2005.
Sales, however, came in higher than expected at 39.2 billion crowns versus a forecast 38.8 billion crowns and 31.5 billion crowns
in the same period a year earlier, including 2.9 billion crowns from the Marconi business, which it acquired last year to boost its fixed-line operations.
It was partly the costs of integrating Marconi, as well as expenses associated with winning new contracts in the growing services business, which ate into profitability.
Gross margin fell to 43.3 per cent, below a forecast 43.7 per cent, from 48.5 per cent in the first quarter of 2005.
The operating margin was 16.9 per cent versus a forecast 18.8 per cent and the year-ago 21 per cent, but compared favourably to rival Nokia Networks' operating margin of 8.8 per cent reported yesterday, down from 15.4 per cent.
Ericsson hinted at further pressure on profitability as it takes on new business in a market for equipment for GSM and high-speed 3G phone networks where it said the long-term growth drivers of new subscriber additions were still in place.
Ericsson shares opened down 2.4 per cent at 28 crowns.