Strategic highlights – taking proactive action in a challenging market environment
Delivering on network technology leadership strategy; externally recognized as 5G leader for 4th consecutive year.
Further progress to build out Global Network Platform for network APIs; two additional partnerships in Q2.
New 5G patent licensing agreement signed; on track to deliver the SEK 12-13 b. IPR revenue target for 2024.
Financial highlights – strong gross margin expansion, partly offset by targeted R&D investments
Sales declined -7%* YoY, but market area North America grew by 14%*. Reported sales were SEK 59.8 (64.4) b.
Adjusted[1] gross income increased to SEK 26.3 (24.7) b. driven by strong gross margin expansion. Reported gross income was SEK 25.8 (24.1) b.
Adjusted[1] gross margin was 43.9% (38.3%) supported by higher IPR licensing revenue and cost actions. Networks adjusted gross margin was 46.1% (39.3%). Reported gross margin was 43.1% (37.4%).
Adjusted[1] EBITA was SEK 4.1 (3.7) b. with a 6.8% (5.7%) margin, with higher gross income partly offset by increased R&D investments in Networks for technology leadership. EBITA was SEK 2.4 (0.5) b.
Net income (loss) was SEK -11.0 (-0.6) b., including a SEK -11.4 b. impairment impact. EPS diluted was SEK -3.34 (-0.21).
Free cash flow before M&A was SEK 7.6 (-5.0) b. benefiting from a strong improvement in working capital.
Ericsson successfully executing its network technology
leadership strategy, resulting in external recognition as the industry-leading
5G provider for the fourth consecutive year.
The company continued progress in developing the Global
Network Platform for network APIs, with two additional partnerships established
in Q2.
Ericsson outperformed profit and sales projections on Friday
due to increased demand in North America, indicating potential recovery from a
broader market downturn. Consequently, its stock reached its highest value
since October 2022.
The telecommunications equipment manufacturer and its
competitor Nokia have reduced their workforce and implemented cost-cutting
measures in response to decreased demand for 5G telecommunications equipment
from customers. However, both companies expressed cautious optimism in April,
projecting a gradual improvement in demand as the year progresses.
"We expect market conditions to remain challenging this
year as the pace of India investments slow. However, our sales will benefit
during the second half from contract deliveries in North America," CEO
Börje Ekholm said.
Adjusted core earnings (EBITA) decreased by 50% from 8.21
billion crowns in the previous year to 4.05 billion crowns. However, it
surpassed the consensus estimate provided by J.P. Morgan by 9.5%. This
favorable outcome can be primarily attributed to a 14% increase in sales within
the North American region.
The company experienced an improvement in its adjusted gross
margin, rising from 38.3% in the previous year to 43.9%. This favorable shift
is attributed to a strategic reorientation of sales towards the higher-margin
U.S. market.
Ericsson has secured a significant contract in North
America, surpassing Nokia, to provide equipment to the mobile network operator
AT&T. This development marks a positive turn for Ericsson in the region.
The Chief Financial Officer, Lars Sandström, disclosed to
Reuters that the second quarter in North America experienced a surge due to
several clients, although he refrained from disclosing their identities. The
official statement from the company alluded to “substantial clients” within the
networks business unit.
Ericsson’s stock experienced a slight correction after
initial gains, settling at a 5% increase by 09:20 GMT. The stock reached an
intraday high of approximately 74 crowns, marking its highest level since
October 2022.
Paolo Pescatore, an esteemed analyst at PP Foresight,
expressed optimism regarding the “encouraging” results achieved amidst
challenging market conditions. Jefferies, a reputable financial institution,
projected an upward trajectory for sales and gross margin in the latter half of
the year, citing the AT&T agreement as a contributing factor.
Industry analysts at Inderes have indicated that the
increasing transaction volumes within the North American Networks sector are
generating optimism that major operators in that region will recommence
significant investments towards the latter part of the current year.
Sales at Ericsson decreased by 7%, to 59.9 billion crowns,
surpassing projections.