Ericsson's Next G cash cow is dead

Ericsson's Next G cash cow is dead

Summary: Ericsson Australia's financial picture grew a little bleaker last financial year, with revenues falling $200 million to $805 million — roughly $600 million less than its Telstra Next G boon year of 2006, which netted it $1.4 billion.

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Ericsson Australia's financial picture grew a little bleaker last financial year, with revenues falling $200 million to $805 million — roughly $600 million less than its Telstra Next G boon year of 2006, which netted it $1.4 billion.

The company's first financial year under its new local chief Jacqueline Hay has fallen well short of the figures posted by her predecessor Bill Zikou, who hung up his boots late last year. Hay, who was appointed to the role in November 2008, signed off on the company's 2008 financial year report (for the year to 31 December 2008), lodged with the Australian Securities and Investments Commission on 11 June 2009.

Ericsson's local operating revenues for financial year 2008 stood at $805 million, bringing it into the same realm as fellow industry heavyweights, Alcatel-Lucent, which grew local takings 5 per cent last year to $861 million, and Cisco, which suffered a 7 per cent drop, netting it $888.8 million.

Ericsson's 2008 revenues fell dramatically from its 2007 result of $1.02 billion, with profits hit even harder, falling from $20.2 million in 2007 to $857,000 for the last year.

The directors, including Hay, local chief financial officer (CFO) David Spong and Ericsson's incoming global chief, former global CFO Hans Vestberg, noted that the $15 million dividend that went to the parent company in 2007 would not be paid this year.

Staffing levels have remained fairly consistent for the company, with the latest figures prior to this financial report standing at around 1660. This report revealed headcount had fallen to 1604; however, Ericsson Australia earlier this year said it would cut around 300 staff from its local operations in 2009.

More troubling news for the telecommunications equipment sector was aired last week, as Telstra (the industry's largest spender), which in 2006 had awarded Ericsson the $1 billion contract to build its Next G network, confirmed it planned to cut capital expenditure by $1 billion to deliver its $6 billion free cash flow target for the 2010 financial year.

Ericsson's outlook appears to be stalled in a holding pattern for the moment with optical networking equipment procurement for the $43 billion NBN and its other big hope, LTE (Long Term Evolution) still some time away.

Cisco, Alcatel-Lucent and Tellabs were all big winners from Telstra's near-complete Next IP core network refresh that, along with its Siebel billing systems overhaul and Next G, formed its multibillion dollar transformation that Telstra CFO John Stanhope said last week had passed its peak spending period.

Stanhope offered a glimmer of hope for Ericsson, however, when he said Telstra's capital expenditure would be pegged at 14 per cent of its annual revenues, which would remain flat for the next three years unless a major new technology prevailed, providing a platform for revenue growth. The chances for any immediate investment though is unlikely, given that the Federal Government's spectrum allocation for LTE, which would ideally be 700MHz or 2.5GHz for Telstra, is still under review.

"Let's say LTE comes along... There will be a kick [in revenues], there's no doubt about that," said Stanhope. "But LTE is not tomorrow, not next year, and maybe not the next year after that."

Topics: Telcos, Banking, Mobility, Telstra

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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