Ericsson's 5G Momentum Builds But Margins Seen Squeezed -- Earnings Review
July 17 2019 - 7:40AM
Dow Jones News
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)
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