Ericsson Earnings Decline 63 Percent in 2d Quarter

BERLIN — Ericsson said Wednesday that its profit fell by 63 percent in the second quarter, as telecommunications carriers trimmed spending on equipment in the United States, Russia and China.

Net income fell to 1.2 billion Swedish kronor, or $172 million, on a 1 percent increase in sales, to 55.3 billion kronor, Ericsson said.

Shares of the company, which is based in Stockholm, fell by 2.6 percent to 57.3 kronor in afternoon trading Wednesday.

Hans Vestberg, the chief executive of Ericsson, told analysts in Stockholm that economic slowdowns in Russia and China had weighed on profits, along with falling demand for older network gear in North America, where operators are activating new, upgraded networks.

The decline was also driven by mounting losses at ST-Ericsson, a venture with Swiss chip maker ST Microelectronics that makes mobile-phone modems and components. The loss at the Geneva-based venture nearly doubled to 1.3 billion kronor from 700 million a year earlier.

Investors are closely monitoring signs of a further global slowdown, which would show up in the results of Ericsson, the biggest maker of telecommunications equipment.

“They are signaling that China may be on the weak side going forward and we already knew that Russia was coming down,” said Hakan Wranne, an analyst at Swedbank in Stockholm. “But the biggest concern is the U.S. market, which will continue to be weak.”

Sales of network equipment in North America, a region that accounted for nearly one quarter of Ericsson’s global sales, fell by 22 percent in the quarter. The decline came as carriers such as Sprint and Verizon Wireless replaced their older gear, which runs on a 1980s technology called Code Division Multiple Access or CDMA, with new networks built on a Internet-based transmission technology called Long Term Evolution, or LTE.

Globally, sales of CDMA equipment fell by 50 percent amid the transition to LTE grids, Ericsson said.

Ericsson partially offset weakness in its main network equipment business by selling outsourcing and software to carriers. Sales of services and software rose 29 percent in the period to 27.6 billion kronor from 21.4 billion, generated half of Ericsson’s quarterly sales.

Despite its falling profits, Ericsson is still faring better than some competitors. Alcatel-Lucent, the French network equipment maker, and ZTE, a Chinese rival, both issued profit warnings this week following poor second-quarter results. The message from Ericsson was more positive, although the company as is its practice gave no profit or sales forecasts.

Mr. Vestberg told financial analysts said that long-term demand for new network equipment was expected to remain strong, driven by rising purchases of smartphones. Through 2017, the number of smartphone subscriptions worldwide is expected to more than quadruple, Mr. Vestberg said, to 3 billion from 700 million at the end of June.

That will stoke demand for new LTE networks and network equipment, he said.

“We continue to stay close to our customers to monitor the impacts of macroeconomic development and political uncertainty in certain regions on their investments,” Mr. Vestberg said. “In customer conversations, it is clear that the fundamental drivers for increased data traffic are unchanged.”

In an interview, Mr. Vestberg said consumer demand for LTE handsets had started slowly, with only 2 million being sold worldwide each month in that last quarter. That compares with 5 to 10 million GSM mobile phones sold each month in India alone. The United States and South Korea are the world’s most advanced LTE markets, he said.

But other countries will soon follow, as new, faster networks come on line and more LTE handsets are sold at more affordable prices.

“The current LTE handset sales are still very low in global terms, but this is a transitional period and we are soon going to see explosive growth,” Mr. Vestberg said.

Mr. Wranne, the Swedbank analyst, said that Ericsson was better positioned because of its market leadership to capitalize on that coming growth. “The top line for Ericsson is really doing O.K. at the moment given the profit warnings from its competitors,” Mr. Wranne said. “The expectations given the current global situation weren’t that high, either.”