A day after Nokia dazzled the market with its earnings and projections, Ericsson released a dour view of the mobile phone market, with slowing sales and negative margins. At the same time, Ericsson's infrastructure division, the larger part of its business, sparkled. It seems the Nokia report came at the nick of time to rescue investor sentiment, since Ericsson's report mirrored that of Motorola, the third of the "big three" mobile phone producers. But unlike Motorola, Ericsson is not moving away from handset sales.
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This is what makes Nokia's decision to accelerate its earnings announcement by a week so noteworthy. Nokia was previously expected to announce next week, but suddenly on Wednesday informed the public that it was ready and would make its numbers public the next day. These numbers projected Nokia's mobile phone growth as stronger than expected, and Nokia maintained its unit and revenue projections for the next year.
Investors in mobile phone companies had been in a choleric mood, as Motorola (NYSE: MOT) last week guided its market projections for mobile phones significantly lower. The mood was dour until Nokia's announcement yesterday.
Then comes Ericsson's announcement. The company's infrastructure division once again performed, returning sparkling results with $4.4 billion in revenues, 37% higher than the previous year, and an increase of net profit margins from 15% to 17%. But contrast that with the consumer products division -- 99% of which is mobile phones --and you get the sense this is a company pulling itself in different directions. Sales slowed considerably, and the company lost $400 million in the division, pulling its overall operating profit margins down to 7%.
But with Nokia having announced yesterday, Ericsson's announcement overnight will likely be seen as a company-specific event. While the market sentiment is, in the long term, unimportant to the underlying fundamentals of the companies involved, the mood has been so sour that Nokia felt the need to take its destiny into its own hands. Probably a good thing it did, as the Ericsson announcement would otherwise have caused further lamentations on the overall health of the mobile phone market.
For Ericsson, the company insists that operators want the same company handset that provides the network. This may be true in the future as third-generation networks roll out, but it does not seem to hold water now. Ericsson is convinced of the long-term viability of this division, and has put out a four-point profitability plan to combat the slide. Investors can only hope that this company, once such a powerful player in the mobile phone market, rights itself, or focuses on its burgeoning infrastructure division.
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