Ericsson Shares Climb on Better-Than-Expected Q1

Net profit in the first three months of 2008 was to 2.7 billion kronor (US$460 million), compared with 5.8 billion kronor ($972 million) a year ago.

Sales rose to 44 billion kronor ($7.4 billion), from 42 billion kronor ($7 billion) in the year-ago quarter.

A Nice Surprise

Ericsson reported higher costs in the quarter, related to recent acquisitions, restructuring charges and research and development investments. A 48 percent drop in profits at mobile phone joint venture Sony Ericsson also weighed on results.

Ericsson's shares that have been battered since a profit warning last year rose sharply to 15.64 kronor ($2.65) in midday trading.

"This was a really nice surprise," said eQ Bank analyst Jari Honko. "This shows that Ericsson is a shining star in the network industry."

Honko said Ericsson's operating profit beat the market consensus by about 16 percent. Despite Ericsson's results, he cautioned that the network infrastructure industry was in a "difficult phase."

Ericsson chief executive Carl-Henric Svanberg said his company "developed well in the quarter, considering the present market environment and the declining U.S. dollar."

A weak dollar makes exports more expensive.

Still, he said, Ericsson continues "to plan for a flattish development in the mobile infrastructure market" in 2008, but that the professional services market "is expected to show good growth.

Big Test Ahead

Jacob Pedersen, an analyst at Sydbank, said the report was very pleasing in relation to the market's forecasts, but said "the question now is whether this is just a one-timer?"

"Are revenues just being pushed around between quarters or is Ericsson able to gain market share?" he asked.

The numbers alone, and without comparing them with analyst expectations, actually showed a "pretty disappointing earnings development compared to the same quarter last year," he said, adding consensus have come down a fair bit since the Ericsson share started its downward tumble last year.

Since the second half of last year, shares in the Stockholm, Sweden-based company have plunged on the back of a surprise profit warning as well as turmoil in the world's financial markets.

"The big test will be the half-year report," Pedersen said, pointing to fairly downbeat management comments given for the coming quarters.

"They indicated that a larger portion of revenues could come from network rollouts rather than from software product upgrades," he said, adding that the margins are greater on the latter.

Ericsson in February announced a cost-cutting plan that would lead to thousands of layoffs worldwide.