Quarterly Business Magazine

Ericsson Ends Run of Forecast-Beating Results With Asia Warning

Posted :
Wednesday, July 17, 2019

Ericsson AB posted earnings that missed analyst estimates for the first time in six quarters and said its rollout of 5G mobile networks in Asia would weigh on profitability, in a rare setback for Chief Executive Officer Borje Ekholm’s turnaround efforts.

  • The Swedish network equipment vendor’s adjusted operating profit rose to 3.9 billion kronor ($415 million) from 2.0 billion kronor a year earlier. That compared with the average estimate of 4.4 billion kronor in a Bloomberg survey of analysts.

Key Insights

  • All of Ericsson’s business units except Networks posted results below estimates, showing Ekholm has more work to do after a successful turnaround of the company’s biggest division.
  • Ericsson is fighting Finland’s Nokia Oyj and China’s Huawei Technologies Co. for market share in 5G wireless networks that offer super-fast download speeds, minimal delay and capacity for more simultaneous connections.
  • Ekholm said Wednesday that the start of 5G deliveries in Asia “will gradually impact margins negatively in the short term but strengthen our position in the long term.”
  • The company said those “strategic contracts” with initially low margins would not jeopardize the company’s profitability targets for 2020.

Market Context

  • Ericsson shares have gained on the previous five interim reports. The stock has risen 33% in the last 12 months as Ekholm’s two-year effort to reverse a slump in profits began to pay off.

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  • Ericsson’s adjusted gross margin -- the share of sales left after production costs -- was 36.7%, unchanged from a year earlier, compared with an analyst estimate of 37.1%
  • “Large 5G deployments in parts of Asia are expected to commence at the end of 2019 and will gradually impact gross margin negatively in the short term,” Ericsson said.
  • See the numbers here
  • NOTE: Ericsson Investors Start to Enjoy Life Without Nasty Surprises
  • NOTE: Ericsson Takes $687 Million Charge to Fix Digital Services Unit

By Niclas Rolander

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