Foolish Forecast: King Eric Marches On

Telefonaktiebolaget LM Ericsson (Nasdaq: ERIC  ) , better known as just Ericsson here in the States, reports second-quarter earnings Friday morning. Lucky you -- there's a Fool on the spot who can scour filings and media reports in Ericsson's native Swedish for you, to present a lowdown on the company and its current prospects.

What analysts say:

• Buy, sell, or waffle? According to Reuters estimates, 54 analysts cover Ericsson: 35 of them have a buy rating on the stock, along with 14 holds and five sellers. In our Motley Fool CAPS community, 126 users have cast their votes to make this a three-star stock (out of five stars).
• Revenues. The consensus forecast says that we'll see $7.11 billion on the top line this time, 19% above the year-ago total of $5.96 billion.
• Earnings. $0.64 per share would sate the cravings of the average analyst, up from the $0.49 per share reported last year.

What management says:
In the last earnings report, CEO Carl-Henric Svanberg shone the spotlight on Ericsson's multinational dominance:

Sales growth in the quarter was primarily driven by Western Europe, and large turnkey projects in Central and Eastern Europe, Middle East, Africa and Asia Pacific. Our capability in managing such projects around the world is a competitive advantage. ... Our commitment to operational excellence continues and operating expenses grew less than 3 percent versus a sales growth of 8 percent.

What management does:
The Sony (NYSE: SNE  ) Ericsson handset joint venture complicates things a bit, as results from that operation don't count as revenue with operating costs, but come in as a simple cash item before taxes, along with interest income and the like. Sony Ericsson is becoming an important part of Ericsson's earnings, though, to the tune of about 25% of pretax income, give or take a few points.

But phone network infrastructure equipment remains the company's rye bread and pickled herring. Read on to see how that segment is doing.

Margins	12/2005	3/2006	6/2006	9/2006	12/2006	3/2007
Gross	45.5%	44.6%	43.4%	42.6%	41.2%	41.2%
Operating	21.6%	20.8%	19.9%	20.9%	18.7%	19.3%
Net	16.0%	15.2%	14.6%	14.8%	14.8%	15.2%

YOY Growth	12/2005	3/2006	6/2006	9/2006	12/2006	3/2007
Revenue	15.0%	17.9%	17.1%	16.6%	17.1%	13.1%
Earnings	38.6%	15.4%	18.2%	17.2%	8.0%	13.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Ericsson just signed its largest-ever contract, a two-year GSM equipment deal with Indian phone giant Bharti worth $2 billion. India is the world's fastest-growing cell phone market right now, and it stands to reason that Sony Ericsson handsets would follow the infrastructure investment there. Upgrading this network to 3G capability would be a simple matter of installing 3G base stations at the "soft switch" interchanges, according to Ericsson's head of Indian operations, Mats Granryd.

That's not all, though. Three Wieners (my own translation of the common Swedish term for Ericsson, "Tre Korvar") is negotiating a massive 3G deal with the other major Indian player, BSNL. That particular order will be shared with the Nokia (NYSE: NOK  ) Siemens (NYSE: SI  ) network-focused joint venture, though. And Vodafone (NYSE: VOD  ) recently placed orders for IMS systems to be installed in Germany and Portugal. These orders are widely reported as "substantial," though the companies haven't given us any dollar values yet. In China, where the networks are adding 7 million new user accounts every month, the backend orders are going to Ericsson or local incumbent Huawei, to the detriment of all other provider hopefuls.

It's fun and games across the globe, and Ericsson is growing as long as somebody needs a simple phone network, or an upgrade to the old one. I don't see that need abating anytime soon, especially since phone users everywhere have started to develop a taste for data-intensive music and video services. Maybe it's time to take a serious look at Ericsson as an investment opportunity.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure will help you find the road ahead.