Ericsson Reports Swing to Net Profit, Higher Revenue in 3Q; Backs Guidance -- Earnings Review
October 21 2020 - 8:12AM
Dow Jones News
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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