Ericsson to Benefit From Stronger Dollar -- Earnings Preview

-Earnings Preview

By Juhana Rossi

Sweden's Ericsson (ERIC), the world's leading telecom-equipment supplier, is scheduled to announce its fourth-quarter results on Tuesday, Jan. 27 at 0630 GMT. Here's what you need to know:

EARNINGS FORECAST: The median estimate for fourth-quarter net profit is SEK4.56 billion ($547 million), according to an analyst poll compiled by Reuters, down 29% from SEK6.41 billion in the year-ago period. The median estimate for fourth-quarter per-share earnings is SEK1.39. Ericsson issues no financial guidance.

REVENUE FORECAST: The median analyst estimate for revenue in the October-to-December quarter is SEK69.56 billion, up 4.5% from a year ago.

NOTE: Ericsson closed an IPR licensing deal with Samsung in early 2014, and recorded the income from this deal as a part of its earnings in the fourth-quarter of 2013. The one-off positive impact on Ericsson's net sales was SEK4.2 billion and net profit SEK3.3 billion.

WHAT TO WATCH:

--SPENDING BY OPERATORS: On the surface, year-end developments appear to have gone against Ericsson: Operator capital expenditure has been waning in the U.S., a key market, while it has remained robust in China, where Ericsson holds a relatively small market share. However, Ericsson's sales have grown in India, the Middle East and in parts of Europe, and should compensate for slower sales growth in the U.S.

--FAVORABLE FX MOVEMENTS: The Swedish krona depreciated 17% against the dollar in 2014, and 8% during the October-to-December quarter alone. The substantial weakening of the Swedish krona vs. the dollar provides a strong boost to Ericsson's sales and earnings. During the fourth quarter, this favorable currency is expected to have been offset in part by hedge accounting losses amounting to SEK1 billion, but the currency-linked tailwind for Ericsson is expected to show its full force during 2015.

--COST CUTS & APPLE: Ericsson said in November that its profit level and growth rate are "not satisfactory." To address this weakness it plans to cut costs by SEK9 billion by 2017. Investors will be looking for information about how the company will do this. Earlier in January Ericsson and Apple started a legal battle over royalties for Ericsson's patents linked to wireless technology the Apple uses in its mobile devices. Investors are keen hear how the dispute and its outcome could affect the value of Ericsson's patent portfolio in the future.

Write to Juhana Rossi at [e-mail]; Twitter: @WSJNordics

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