Ericsson reported a strong improvement in fourth-quarter profits, supported by cost reductions and modest sales growth. Net profit jumped 68 percent to SEK 7.0 billion or SEK 2.15 per share, and operating profit was up 75 percent year-on-year to SEK 11.0 billion. Sales increased 8 percent from a year earlier to SEK 73.6 billion, but fell 1 percent after adjusting for currency effects and comparable units.
Ericsson said its Networks business saw growth in North America and the China 4G market recovered after a weak Q3. Emerging markets such as India, Indonesia and Mexico remained strong while markets such as Russia, Brazil and parts of the Middle East continued to be weak, mainly due to macro-economic developments. Investments in Europe were driven by the transition from 3G to 4G and capacity enhancements.
The company also reduced its operating costs by around 10 percent year-on-year in the second half of 2015, as part of its target to achieve SEK 9 billion in savings by 2017. In addition, higher revenues from IP licensing, including the recent agreement with Apple, helped boost margins. Ericsson said it's now more than tripled its licensing revenues in the past five years, with agreements with all the major handset makers.
After more than doubling operating cash flow in Q4, Ericsson raised its dividend by 9 percent to SEK 3.70 per share. In its outlook, Ericsson signalled a more cautious approach to acquisitions, saying it will focus on continuing to win contracts in its core business, especially in 4G, and improving profitability in its targeted growth areas, where it's made a number of recent acquisitions. This will involve a stronger focus on software sales and recurring business as a complement to the Professional Services business, the company said.
In addition, the strategic partnership with Cisco is expected to extend its addressable market and add USD 1 billion or more in additional sales by 2018. The Cisco cooperation should already add to operating profit from this year, Ericsson said.
