Strong demand for mobile broadband boosted wireless equipment maker LM Ericsson's sales in the second quarter but restructuring costs kept the rise in profits below expectations.
Ericsson said Thursday that its net profit in the April-June period was 3.2 billion kronor ($490 million), up 59 per cent from 2.0 billion kronor in the same period last year. The result included a restructuring charge of 1.7 billion kronor, mainly related to staff cuts in Sweden.
The company said the cost-cutting program negotiated with Swedish unions in June turned out to be more expensive than anticipated. As a result, Ericsson said its estimated restructuring costs for 2011 will be around 3 billion kronor, significantly higher than its previous estimate of 2 billion kronor.
Ericsson shares plunged 9 per cent to 83.65 kronor ($12.90) in early trading in Stockholm.
A robust performance by the Swedish company's core network unit outweighed poor results from its joint ventures, including mobile phone maker Sony Ericsson, which posted a 50 million euros ($71 million) loss last week partly due to supply disruptions caused by the tsunami and earthquake in Japan.
Ericsson's sales grew 14 per cent to 54.8 billion kronor, from 48.0 billion kronor in the second quarter of 2010, "driven by a continued strong demand for mobile broadband," CEO Hans Vestberg said.
The Stockholm-based company reported strong growth in Brazil, China, Germany, South Korea and Russia, while sales were slower in North America and Japan.
Ericsson is the world leader in rolling out and upgrading mobile network infrastructure as the world's wireless users grow in number, boosting demand for ever-faster network speeds. Its biggest competitors are China's Huawei and Finnish-German joint venture Nokia Siemens.
Ericsson said global mobile penetration has now reached 81 per cent globally, with 5.7 billion mobile phone subscriptions, with China alone accounting for more than 900 million subscriptions.
"India and China accounted for more than 50 per cent of the estimated 185 million net additions during the second quarter, adding around 63 and 30 million respectively," Ericsson said. Indonesia and Brazil were third and fourth in terms of new subscriptions.