Ericsson Second-Quarter Operating Profit Meets Expectations

Ericsson Q2 Operating Profit
Image: Ericsson

Mobile telecom equipment maker Ericsson reported a rise in line with expectations in second-quarter operating earnings helped by strong sales growth in North America.

Ericsson, which is one of the main suppliers of equipment for 5G equipment alongside Huawei and Nokia, said it expects to meet its targets for 2020, reports CityAM.

The Swedish company has pledged to deliver an operating margin, excluding restructuring costs, of over 10% in 2020.

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“Organic sales growth was 7% in the quarter, mainly driven by sales in North America and North East Asia,” Chief Executive Borje Ekholm said in a statement. We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks. To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.”

Ericsson CEO
Börje Ekholm, President and CEO of Ericsson (Image: Ericsson)

Second quarter highlights for Ericsson

  • Sales were SEK 54.8 (49.8) b. Sales adjusted for comparable units and currency increased by 7% driven by growth in Networks in North America and North East Asia. Reported sales grew by 10%.
  • Gross margin was 36.6% (34.8%). Gross margin excluding restructuring charges was 36.7% (36.7%).
  • Networks gross margin excluding restructuring charges improved to 41.4% (40.2%) YoY. Sequentially, Networks gross margin decreased from 43.2%, mainly due to costs related to a previously communicated license settlement agreement, negative impact from strategic contracts and lower IPR licensing revenues.
  • Operating income was SEK 3.7 (0.2) b. and operating margin was 6.8% (0.3%). Operating income excluding restructuring charges was SEK 3.9 (2.0) b. and operating margin excluding restructuring charges was 7.0% (4.1%).
  • Net income improved to SEK 1.8 (-1.8) b.
  • Free cash flow before M&A was SEK 2.2 (-0.2) b. Net cash amounted to SEK 33.8 (33.1) b.

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“We continue to take strategic contracts and the large-scale network deployments expected to commence in parts of Asia, will gradually impact margins negatively in the short term but strengthen our position in the long term. Continued technology and market investments, especially in 5G, automation and AI, are fundamental for long-term competitiveness and a key part of our focused strategy to strengthen our long-term business and path to reaching our targets for 2020 and 2022, Mr. Ekholm said.