Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Watch Ericsson Fall, Then Ride It Back Up

I wonder what tomorrow has in mind for me
Or am I even in its mind at all?
Perhaps I'll get a chance to look ahead and see --
Soon as I find myself a crystal ball!

-- From "Crystal Ball," by Styx, from the 1976 album Crystal Ball

Spend money to make money. Sunshine after rain. And if you're Swedish telecom giant LM Ericsson (Nasdaq: ERIC  ) , you have to build out low-margin networks before collecting the high-margin payday on software sales.

Ericsson just reported earnings of 2.7 billion Swedish crowns (about $460 million, or $1.70 per American depositary receipt) on 44 billion kronor ($7.4 billion) of revenue. That's a 55% earnings drop year over year and only 4% higher sales, but still much better than Mr. Market had expected -- the stock jumped today as much as 15% over last night's closing price. Now it's back to the price levels of last November.

The exuberant market reaction comes despite a cool and quiet update of the near-term market. This quarter was good because of strong network infrastructure sales in places like China, India, and Latin America, where growth is easier to come by than margins. The 2008 development there was described as "flattish."

It is a testament to Ericsson's unique strengths and commanding market share on communications infrastructure that other providers like Nokia (NYSE: NOK  ) , Siemens (NYSE: SI  ) , and Alcatel-Lucent (NYSE: ALU  ) hardly moved at all on this report. These results may not point to a broad market resurgence after all, and even Ericsson itself prefers to take a long view of the moneymaking opportunities.

As we move forward, Ericsson will become somewhat less of a pure-play telecom supplier. The future of the company lies in wireless broadband equipment and in IPTV infrastructure, along with software and services for the wireless and wireline telephone systems already installed.

The expensive part of that transition is now, and the company could be in for another year or two of low margins and frustrating stock-price moves. After that, it's all high-margin gravy and more competition against Cisco (Nasdaq: CSCO  ) than Nokia -- at least according to my crystal ball.

Further Foolishness:

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 630636, ~/Articles/ArticleHandler.aspx, 10/21/2016 4:48:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
ERIC $5.10 Down -0.27 -5.03%
Telefonaktiebolage… CAPS Rating: *
CSCO $30.15 Down -0.01 -0.03%
Cisco Systems CAPS Rating: ****
NOK $4.92 Down -0.08 -1.60%
Nokia CAPS Rating: **
SIEGY $115.76 Down -0.19 -0.16%
Siemens AG (ADR) CAPS Rating: ****