STOCKHOLM (Reuters) - Telecoms gear maker Ericsson expects slower expansion in the more profitable services segment of its business and the same level of growth in its core mobile network equipment market, it said on Tuesday.
Competition and increased product commoditization have pressured prices in the industry for years. Europe’s debt crisis and weaker global growth squeezed vendors further.
The result is that Ericsson has seen profitable network sales slipping while it has gained from telecoms carriers outsourcing many of their operations, boosting sales of services like network management.
“This development will naturally imply a future business mix for Ericsson with more recurring software and services revenues,” CEO Hans Vestberg said in a statement.
“However, hardware will always be part of the mix and a key differentiator for Ericsson.”
Ericsson said it expected the market for telecoms equipment to show compound annual growth of 3-5 percent over the 2012-2015 period, the same as its previous forecast for 2010-2013.
The company, the world’s biggest supplier of mobile network infrastructure, said it expected growth of 4-6 percent in key segments of the overall market, but saw a slightly slower expansion in services compared to recent years.
Services have grown rapidly in recent years and hit 45 percent of group sales in the third quarter.
In the third quarter, Ericsson’s core profit fell 42 percent due to slower orders and a shift in business mix to less profitable contracts.
The company repeated that it expected this mix to continue over the next 3 to 4 quarters.
Rivals have also been suffering. Alcatel-Lucent said it may sell assets to strengthen its balance sheet after posting a second straight quarterly loss.
Reporting by Niklas Pollard; editing by Patrick Lannin