Ericsson's 5G Momentum Builds But Margins Seen Squeezed -- Earnings Review

Date : 07/17/2019 @ 12:40PM
Source : Dow Jones News
Stock : Ericsson (ERIC)
Quote : 8.07  -0.04 (-0.49%) @ 12:59AM

Ericsson's 5G Momentum Builds But Margins Seen Squeezed -- Earnings Review

Ericsson (NASDAQ:ERIC)
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2 Months : From Jun 2019 to Aug 2019

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By Dominic Chopping

 

Sweden's Ericsson AB (ERIC) reported results for the second quarter on Wednesday. Here's what you need to know:

 

SALES FORECAST: Ericsson reported a 10% sales rise to 54.81 billion Swedish kronor ($5.85 billion) against SEK53.51 billion expected in a FactSet analyst poll.

 

NET INCOME FORECAST: The telecoms-gear maker posted a net profit attributable to shareholders of SEK1.71 billion from a net loss of SEK1.89 billion last year. A FactSet poll had expected a net profit of SEK1.7 billion in the quarter.

 

WHAT WE WATCHED:

 

5G PROGRESS: Strong momentum in its 5G business saw its networks business have another solid quarter with an organic sales growth of 11% on the year, driven by 4G and 5G investments in North America and North East Asia as well as increased volumes related to strategic contracts. Sales to North America represented more than a third of its global network sales in the quarter, but activity in Northeast Asia also started to gain traction with 5G deliveries in South Korea and continued 4G deployment in mainland China to accommodate increased traffic demand. The current sales level in North America is expected to remain throughout 2019 and it expects large 5G deployments in parts of Asia to commence at the end of 2019.

 

MARGINS: Ericsson has been signing strategic 5G contracts that will be margin accretive in the long term, but the impact on near-term profitability is negative, it said. In the quarter there was a negative impact on gross margin and it expects this impact to increase during the second half of the year. In addition, costs related to the previously announced license settlement agreement impacted margins negatively. Ericsson's networks division, which makes up around two-thirds of group sales, saw gross margin increase in the quarter compared with the same period last year. However, they fell sequentially after the company paid out to settle a previously announced patent infringement and due to the negative impact from strategic contracts and lower intellectual-property licensing revenues.

 

Write to Dominic Chopping at dominic.chopping@wsj.com; @domchopping @WSJNordics

 

(END) Dow Jones Newswires

July 17, 2019 07:25 ET (11:25 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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