Mobile network equipment maker LM Ericsson told investors that its sales rose 5 percent to $7.4 billion in the first quarter, but its profit for the period fell 55 percent to $60 million. Still, the results were far better than many industry analysts had expected.
Ericsson's mobile infrastructure business developed well in the quarter, considering the present market environment and the declining U.S. dollar, noted Ericsson CEO Carl-Henric Svanberg. "The sales development in the quarter reflects the demand for mobile infrastructure, especially in high-growth markets," Svanberg said. Absent the dollar's negative impact, "total growth would have been 11 percent in constant currency terms."
Though the proportion of new network builds in high-growth markets -- especially in India -- is increasing, "in combination with a weaker U.S. dollar, this continues to put pressure on our margins," Svanberg explained. Therefore, Ericsson still finds it prudent to be cautious and "plan for a flattish mobile infrastructure market in 2008," he said.
Still, Svanberg remains upbeat about the company's longer-term prospects in light of the rollout of mobile broadband on networks around the world. Subscriber growth on the network side of the business continues strongly -- up by 160 million in the first quarter alone. The numbers were "pretty impressive" in March, with China up by around 9 million, and India up by about 7 million, Svanberg said.
The global wideband CDMA subscriber base is also growing. "It's now over 200 million, and the number of HSPDA (High-Speed Downlink Packet Access) subscribers within that is also growing quite quickly," Svanberg noted.
What is important to understand here, Svanberg said, is that all these mobile technologies will continue to coexist for years to come.
"In the early days, one technology matured and was eventually replaced by another," he noted. "Now, with so many subscribers and such large networks in the world," the only practical way to proceed "is to migrate these networks forward and to leverage the installed base," Svanberg explained.
"But this means that GSM (Global System for Mobile communications) -- which today has a more than 80 percent market share of subscribers -- will continue to exist for many years," Svanberg noted. Moreover, faster HSPDA technology is expected to dominate for the next 10 years, given that it "is now an effective alternative to fixed broadband," he said.
The bad news is that the need to support all of these technologies will put pressure on the Ericsson's R & D team for years to come, Svanberg added.
Ericsson and its rivals are also putting their weight behind yet another mobile protocol called Long Term Evolution (LTE), which Svanberg calls the "first true global world standard." Alcatel-Lucent, NEC, NextWave Wireless, Nokia Siemens Networks and Sony Ericsson all recently agreed to keep their combined patent royalty levels for LTE's use in phones below 10 percent of each handset's sale price.
"It is encouraging that LTE, the evolution of HSPDA, is supported by the largest operators around the world," Svanberg explained. "We are investing significantly in this technology to secure leadership also in this area," he said.
The importance of higher-speed technologies such as LTE and HSPDA becomes most evident when we look at the growing importance of multimedia on mobile phones. "Every day there are some 100 million videos that are watched by people around the world," Svanberg said. "In multimedia, we continue to invest in R & D in new business opportunities that reduce profitability," he added.
Image credit: Product shots by Samsung.