Swedish mobile-phone equipment maker Ericsson (NASDAQ:ERICY) has reported a quarter of slow sales growth and lower earnings year over year, yet the stock remains about as buoyant as it was before the report. Some companies would have been found at the bottom of a convenient river wearing concrete boots with results like that, but not Ericsson. What gives?
To begin with, the earnings drop was entirely expected. In fact, analysts were looking for net earnings per share of SEK 0.35, a bigger drop than the SEK 0.36 that the company actually delivered. And if you back out charges related to the integration of British phone network builder Marconi, there was a slight uptick in profits after all.
That's a start, but it still doesn't fully explain the market's complacency in the face of slower organic growth over last year. That's where a couple of large equipment and service orders come in handy. Brazil's largest cellular phone service provider, Vivo Participacoe (NYSE:VIV), just placed an order for 1.1 billion reals' (about $500 million) worth of next-generation network equipment, with an option to upgrade to even newer standards later on. That sale didn't count against the completed quarter's earnings but will contribute next time around.
And Ericsson seems to be the target of a certain gang mentality, as long-standing rivals Nokia (NYSE:NOK) and Siemens (NYSE:SI) have decided to combine their network divisions in a joint venture meant to better compete against Ericsson's market mastery. It's a situation reminiscent of Motley Fool Stock Advisor selection eBay (NASDAQ:EBAY) seeking partners to protect itself against a perceived onslaught from Google (NASDAQ:GOOG) earlier this year.
It's tough to be the king sometimes, but it looks like Ericsson is handling itself rather well; it remains poised to pick some more low-hanging fruit in developing countries with budding cell phone markets. The company forecasts a global market for 4.5 billion cell phones by 2012. If that holds up in reality, it's time to grab a fruit basket and keep on picking. And that goes for all of the handset and network makers, not just Ericsson.
Further Foolish reading:
- There are other opportunities on the phone, too.
- Brazil might present the greatest opportunities you never thought of.
- One Fool gives Ericsson a humble bronze medal.
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Fool contributor Anders Bylund holds no position in the companies discussed here. He feels like a traitor for owning a Nokia phone, though. Foolish disclosureis a great value in any currency. You can check outAnders' holdings for yourself.
