3G growth hurts Ericsson profits
 

Mobile phone network giant Ericsson reported first-quarter earnings and profitability below expectations on Friday due to costs from its takeover of Marconi and the start up of new contracts.

It 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 percent at 28 crowns.

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 percent 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 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 percent, below a forecast 43.7 percent, from 48.5 percent in the first quarter of 2005.

The operating margin was 16.9 percent versus a forecast 18.8 percent and the year-ago 21 percent, but compared favorable to arch rival Nokia Networks' operating margin of 8.8 percent reported on Thursday, down from 15.4 percent. Nokia blamed regional mix as well as price competition.