Ericsson reported strong fourth-quarter demand for smartphone network equipment and said it would take aim at costs after posting disappointing margins, sending its shares higher.

The world's biggest mobile network gear maker posted an 8 percent rise in revenues as telecom operators bought mobile broadband equipment to support growing demand for smartphones such as Apple's iPhone and tablets such as Samsung's Galaxy.

But an increasing proportion of network rollout projects such as 3G networks in India, which include more hardware and less high-margin software, meant the company's gross margin slipped and the operating margin was flat, quarter-on-quarter.

Ericsson's Chief Financial Officer Jan Frykhammar told a call with analysts it was important the company continue to work with efficiencies, sending the company's shares higher.

At 0901 GMT Ericsson shares were up 3.6 percent at 79.85 crowns, outstripping the European technology index which was up 0.9 percent.

Ericsson's gross margin slipped to 37 percent from 39 percent in the July-Sept period and its operating margin was unchanged at 13 percent.

Operating profit excluding joint ventures and restructuring in the seasonally strong quarter was 8.4 billion crowns ($1.28 billion), against analysts' 8.

While 2009 and 2010 were tough years, the market for telecom equipment is finally showing signs of recovery.

We expect the strong uptake for mobile broadband to continue in 2011, with number of mobile broadband subscriptions expected to double and hit one billion already this year, Ericsson Chief Executive Hans Vestberg said in a statement.

Ericsson saw its sales rise 7 percent for comparable units and excluding currency effects in the fourth quarter.

Sales totaled 62.8 billion crowns beating all forecasts in the poll. Ericsson's key Networks unit, its biggest revenue generator, reported sales growth of 14 percent year-on-year.

It is the first time in many quarters where you can see growth in the company, which one almost couldn't have expected...That is important, said Greger Johansson, analyst at Redeye.

Rivals Nokia Siemens Networks, a joint venture between Finland's Nokia and Germany's Siemens report on Jan 27 and Alcatel Lucent on Feb 10.

(Additional reporting by Mia Shanley, Johannes Hellstrom, Niklas Pollard, Olof Swahnberg, Patrick Lanning and Helena Soderpalm; editing by Sophie Walker)

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