Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC), better known as "three wieners" back in Sweden (after its corporate logo) and just plain Ericsson here in the States, will report fourth-quarter 2006 earnings on Friday morning. Let's see whether this hot dog is cooked yet.

What analysts say:

  • Buy, sell, or waffle? Twenty Wall Street analysts follow Ericsson today. Thirteen of them have a buy rating on the stock, and the remaining seven prefer to hold. In our Motley Fool CAPS investor community, it's a three-star stock with a meager following -- only 65 players have made their opinion known to date. Add your voice today, Fool!
  • Revenues. The average estimate calls for $7.3 billion in sales, up from $5.8 billion last year.
  • Earnings. Analyst consensus dictates $0.73 per ADR (where 1 depositary receipt equals 10 shares on the Stockholm exchange). The year-ago period saw $0.68 per ADR.

What management says:
CEO Carl-Henric Svanberg recently told the Swedish press that he expects the negative year-to-date operational cash flow to spring back to breakeven when the fourth-quarter numbers come in. That means making up for a $1.6 billion shortfall, all in one quarter. A performance like that would likely mean record profits.

What management does:
Gross margins have been on a steady decline for some time now, as the major network providers compete for contracts in developing countries. Those deals can be large, but they don't come with fat margins. Nevertheless, the bottom line take has remained remarkably stable, and cash flow is generally on the upswing.

You can see further evidence of the same story in the revenue growth trend. The earnings increases are on the decline, simply because the company came from largely nonexistent net income a couple of years ago. It's much easier to quadruple a couple of million than a couple of billion.

Margins

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

46.7%

46.2%

45.5%

44.6%

43.4%

42.6%

Operating

21.5%

21.7%

21.6%

20.8%

19.8%

20.8%

Net

14.5%

14.7%

16.0%

15.2%

14.6%

14.8%

FCF/Revenue

11.8%

11.7%

13.2%

15.6%

12.9%

15.3%


YOY Growth

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Revenue

13.0%

13.1%

15.0%

17.9%

17.1%

16.6%

Earnings

442.1%

77.3%

38.6%

15.4%

18.2%

17.2%
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:
The underlying stock has dropped nearly 8% over the last two weeks, as European analysts have voiced concerns about the company's growth. If Svanberg's magic cash flow number doesn't materialize, the stock is likely to take a nosedive. The hometown consensus points to a price drop even on good news -- the current share price is based on very high expectations, indeed.

Then again, Ericsson habitually outperforms market expectations. We'll see on Friday whether the recent order influx from places like Russia, India, and China (just a "b" short of a BRIC) was enough to overcome the doubters this time.

Competitors:

  • Nokia (NYSE:NOK)
  • Motorola (NYSE:MOT)
  • Cisco (NASDAQ:CSCO)
  • QUALCOMM (NASDAQ:QCOM)
  • Openwave Systems (NASDAQ:OPWV)
  • Nortel Networks (NYSE:NT)

Openwave is a Motley Fool Rule Breakers recommendation. Find out what David Gardner thinks about that company's recent proxy battle with a free 30-day trial subscription.

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 is good for what ails ya.