Ericsson profits down 63% as sales fall Ericsson, the world's largest telecoms equipment maker by sales, saw margins continue to drop in the second quarter amid falling sales of older network technology and slowing demand in China and Russia. Continuing a weak run of results both for the Swedish company and other European rivals, such as Alcatel-Lucent, Ericsson reported net income down 63 per cent to SKr1.2bn ($172m), compared with a year ago. The Swedish group has been hit by rapidly declining sales for its older CDMA wireless technology while at the same time facing ferocious competition for newer 4G networks. Sales of CDMA technology fell almost 50 per cent year on year, causing a 17 per cent drop in revenues at Ericsson's network division, its largest business unit. Ericsson's gross margin fell to 32 per cent in the second quarter, down from 37.8 per cent in the same period a year ago and 33.3 per cent in the first quarter. Its margins have been falling consistently for the past year as it chases market share in the next generation of networks, coming up against Chinese rivals such as Huawei. The Swedish group said the negative margin effects from its push into fourth-generation LTE networks would "start to gradually decline" at the end of this year. Hans Vestberg, chief executive, said: "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. Our focus is now on translating these gains into sustainable profitable growth. Ericsson's shares fell 3.7 per cent in late morning trading as analysts also expressed concern about its cash flow numbers. François Meunier of Morgan Stanley said "cash generation was bad," noting that operating cash flow was SKr1.4bn, weighed down by late invoices. Ericsson's results came after Alcatel, its French rival, issued its latest profit warning on Tuesday and saw its shares fall about 19 per cent. Shares in ZTE, China's second-largest telecoms equipment maker by revenue fell 17 per cent to close at their lowest level in more than three years after the company issued a profit warning last week.