LIFE WITH GADGETS

A sharp drop in profits for wireless equipment maker Ericsson reflected a tough market, Ericsson CEO Carl-Henric Svanberg said. He sees a "flatish" market ahead for the Swedish mobile communications giant but said Ericsson would "consider carefully" any assets rival Motorola might sell. Ericsson's CEO also promised cost cuts, including job reductions.
Mobile communications giant Ericsson posted a sharp decline in fourth-quarter net income, from $1.52 billion in the year-earlier period to $883.9 million. However, sales rose slightly from $8.49 billion one year ago to $8.54 billion.
Both results met the expectations of analysts, who were cautioned by the Swedish network equipment maker last October to expect a sharp profit decline.
"The market conditions have become tougher in the networks market," CEO Carl-Henric Svanberg told analysts during the company's latest conference call. In particular, the competitive landscape continues to change due to network operator consolidation , he said. Moreover, in the mature markets of Western Europe and North America last year, the company's revenues fell by 1 and 15 percent, respectively, he added.
The rapid growth of mobile communications infrastructures in emerging markets also "resulted in a higher proportion of new network builds with initial lower margins," Svanberg said. "We also had political unrest in several emerging markets, such as Bangladesh, Pakistan and Thailand."

Flat Growth Ahead
A handset joint venture with Sony contributed pretax income of $360.4 million to Ericsson's fourth-quarter results and $1.11 billion to the company's full-year report. Sony Ericsson increased its handset shipments to 30.8 million units in the fourth quarter, an 18 percent year-over-year rise, executives noted.
Sony Ericsson said it sold more than 100 million handsets in 2007. Based on the joint venture's estimate of 1.1 billion handset shipments for the total market in 2007, the company increased its market share 2 percentage points from 2006 to 9 percent.
In response to the news that Motorola is seriously considering separating its mobile handset unit from its other businesses, Svanberg said Ericsson would "consider carefully" any assets that its American rival might decide to sell, but remain cautious, as he believes it would be better for Ericsson to grow its business on its own.
"For 2008, we are finding it prudent to plan for a 'flatish' mobile infrastructure market," which is "basically the way 2007 ended," Svanberg told investors. "But industry fundamentals and consumer behavior support a positive longer-term outlook."

Cutting Costs
Svanberg noted that Ericsson has steadily improved its leading position and share of an "increasingly challenged" mobile networks market. "Our ambition is to continue to do so, irrespective of market fluctuations," he said.
To safeguard the company's competitive position, Ericsson will be taking steps to reduce its annual expenses by approximately $630 million through job reductions and other cost-cutting activities, Svanberg said. However, the new measures are not expected to exert their full effect on the company's bottom line until 2009, executives said.
Some industry observers think struggling network equipment manufacturers such as Ericsson, Alcatel-Lucent, Nokia Siemens Networks and others should benefit from the higher-than-anticipated bids that American network operators submitted in the Federal Communication Commission's latest wireless spectrum auction. Given the strict network build-out deadlines that the FCC has imposed on winning bidders, Ericsson and other network equipment makers are likely to see a bump in North American orders before the end this year.