Profits plunge in Q2 for Sweden's Ericsson

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Swedish wireless equipment maker LM Ericsson saw its second-quarter profits slashed to almost a third as sales in its largest unit, Networks, shrank significantly.

The Stockholm-based company reported Wednesday a net profit of 1.1 billion kronor ($156 million) for the three-month period, down from the 3.1 billion kronor in the same period a year ago.

Ericsson mainly blamed the drop on a shift in its sales pattern — its Networks unit contributed significantly less to its total sales number, while the Global Services unit had higher sales. The net effect of the shift was to pressure the company's margins.

The poorer performance in Networks was largely attributed to lower business activity in China as well as slower operator investments in Russia. The company's profits were also hit by challenges faced by its ST-Ericsson chip-making joint venture, owned together with STMicroelectronics N.V., whose sales of new products have suffered.

CEO Hans Vestberg defended the tight squeeze his company is seeing on its margins, saying that the focus shift will pay off in the longer term.

"In 2010 we made a conscious decision to gain market share and increase technology and services leadership, well aware of the short-term profitability pressure," he said. 2Our focus is now on translating these gains into sustainable profitable growth."

Revenues in the quarter came to 55.32 million kronor, up from 54.77 kronor, while gross margin contracted to 32 percent from 37.8 percent.