Time for Ericsson to Change?

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It's nice to have friends in business. Some companies make a living from their widely cast webs of partnerships and long-standing relationships. But sometimes, you're just better off alone.

LM Ericsson (Nasdaq: ERIC) must feel that way today. The worldwide leader in telephony infrastructure equipment reported third-quarter earnings of a paltry $118 million, on $6.8 billion in sales. That's a 6% sales drop from the year-ago period and a 71% earnings free fall. At $0.04 per share, these were Ericsson's lowest earnings per share since late 2003, and they marked the third quarter in a row in which the company reported EPS below $0.10.

Ericsson's workhorse division, the network-building arm, is doing just fine. Business is a bit slow, but that's an industrywide effect. Ericsson is still taking market share from rivals such as Nokia Siemens, a joint venture of (you guessed it!) Nokia (NYSE: NOK) and Siemens (NYSE: SI).

"The 3G side is rising while emerging markets are moving a little bit slower," CEO Carl-Henric Svanberg told Swedish newspaper Dagens Nyheter. "The weaknesses in our report are temporary." And Ericsson's footprint is enormous: Here in North America, there's Ericsson hardware in the networks of Verizon Wireless (NYSE: VZ), AT&T (NYSE: T), and T-Mobile. And even though Sprint Nextel (NYSE: S) isn't running on Ericsson equipment, the Swedish giant is taking over Sprint's network support.

That's the good news. The bad news is that both of Ericsson's major joint ventures are losing money, dragging down the overall results. The chip-design venture with STMicroelectronics and the Sony Ericsson handset partnership with Sony (NYSE: SNE) combined for an operating loss of $218 million.

I wouldn't be surprised if Ericsson choses to end those efforts in the near future, either by selling its joint-venture stakes back to its respective partners, or by spinning those operations off into stand-alone businesses. This end-to-end product portfolio makes sense in theory, but not so much in practice. And with Svanberg stepping out right about now, this would be a great time for the new regime to reshape Ericsson.

Do you think Ericsson should keep throwing money after the handset market? Show me the error of my ways in the comments below -- or voice your heartfelt agreement.