Shares of Sweden's Ericsson AB leaped as much as 20% on Monday after the world's largest maker of wireless networks posted better-than-expected third-quarter profit, as sales surged and its extensive restructuring started to bear fruit.
Net income fell 28% to 2.84 billion kronor ($384 million), or 0.89 krona a share, from 3.97 billion kronor, or 1.24 kronor a share, earned in the year-earlier quarter. Sales climbed 13% to 49.2 billion kronor.
The results beat consensus forecasts for profit of 2।47 billion kronor and sales of 45.6 billion kronor, according to a poll of analysts surveyed by FactSet Research.
Gross margin was 37% compared to the 36।4% analysts expected.
Gross margin was 37% compared to the 36।4% analysts expected.
The world's fifth-largest handset maker has had to issue two profit warnings this year as consumers have scaled back on phone purchases due to the economic downturn. Initially focused on high-end music phones, Sony Ericsson has beefed up its portfolio of cheap, basic handsets in recent quarters. Still, it's more exposed than most of its competitors to an economic slowdown in Western Europe and the U.S.
Analysts said it showed some resilience this quarter.
Clara Van der Elst, analyst at Standard & Poor's equity research, noted Sony Ericsson sold more phones than she expected and managed to keep its market share stable at 8%.
"We believe we have underestimated Sony Ericsson's competitiveness," she wrote in a note to clients.
Deutsche Bank analyst Jussi Uskola was also upbeat about the results.
"All in all, surprisingly solid numbers and good balance between price cuts and volumes," he said.
But efforts will be needed for the group to improve its profitability.
Gross margin was 22% compared to 31% in the year-ago quarter and 23% in the second quarter due to "continued price pressure at a time of adverse cost trends in the supplier base," Sony Ericsson said.
The average selling price fell to 109 euros from 120 euros in the year-earlier quarter and 116 euros in the second quarter because of tougher competition in the market for mid- to high-end phones.
Richard Windsor, of Nomura International, said the company's "struggle to remain relevant" has cost it dearly in gross margins and average selling prices. He said both came in significantly below his expectations.
Restructuring on track
President Dick Komiyama said the quarter was "challenging as expected," but reassured investors that the company is on track to cut annual operating expenses by 300 million euros by the end of the second quarter of 2009, with the full benefit of the effort expected to appear in the second half of 2009. The measures include a reduction in the group's global work force of about 2,000 people.
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