By Dominic Chopping

 

STOCKHOLM--Sweden's Ericsson AB reported third-quarter earnings Wednesday. Here's what we watched:

 

NET PROFIT: The telecom-equipment maker posted a net profit attributable to shareholders of 5.35 billion Swedish kronor ($608.7 million), compared with a loss of SEK6.23 billion in the year-earlier period. Analysts had expected SEK4.15 billion, according to a consensus provided by FactSet. The company booked a SEK11.5 billion provision to settle a U.S. corruption probe in the corresponding quarter last year.

 

REVENUE: Sales ticked 0.6% higher to SEK57.47 billion, against SEK57.16 billion expected.

 

WHAT WE WATCHED:

 

5G PROGRESS: Ericsson noted high activity levels in North East Asia and North America with increased demand for 5G. Ericsson said 5G contracts in mainland China have developed according to plan, contributing positively to profits in 3Q and are expected to improve further.

 

DEVELOPED VS EMERGING MARKETS: Underlying business fundamentals remain strong in North America, driven by consolidation in the U.S. operator market, pending spectrum auctions, and increased demand for 5G, the company said. Its business in Europe grew based on several footprint gains, and while the pandemic has hurt revenues for several of its customers, and in some cases this has led to a reduction of capex, Ericsson said it has not seen any negative impact on its business, largely due to footprint gains. However, the pandemic negatively impacted sales in Latin America and Africa.

 

MARGINS: Reported gross margin was 43.1% in the quarter from 37.7% last year, driven by strong margin improvements in all segments. Increased software sales contributed to the higher margin in networks and digital services. Managed services gross margin improved mainly as an effect of efficiency gains. Reported gross margin also increased to from 37.6% in the second quarter of this year, primarily driven by the increased gross margin in networks as a result of the business mix and higher software sales.

 

GUIDANCE: The global radio access network equipment market is estimated to grow by 8%, from a previous expectation of 4% for full-year 2020. In China this is expected to grow by 33%, while the global RAN market without China is expected to be flat. Ericsson said year-to-date results strengthen its confidence in hitting the 2020 group target of sales between SEK230 billion and SEK240 billion, with an operating margin excluding restructuring charges at more than 10% of sales. The company also maintains its 2022 margin target of 12%-14%, excluding restructuring charges.

 

Write to Dominic Chopping at dominic.chopping@wsj.com

 

(END) Dow Jones Newswires

October 21, 2020 07:57 ET (11:57 GMT)

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