Ericsson reported strong momentum in the global 5G market and in North America in particular, as it posted Q3 net sales of SEK 53.8 billion (US$5.94 billion), up 9% compared to a year ago in absolute terms but up 1% when adjusted for comparable units and currency. Gross margin was 36.5% (26.9%). Gross margin excluding restructuring charges improved to 36.9% (28.5%), driven mainly by cost reductions, the continued ramp-up of Ericsson Radio System (ERS) and good progress in reviewing Managed Services contracts. Net income was SEK 2.7 billion (US$300 million), compared to a loss of SEK 3.5 billion last year.
Börje Ekholm, President and CEO of Ericsson, states: "We continue to execute on our focused strategy, tracking well towards our 2020 targets. We see improvements across our businesses resulting in a gross margin of 36.9% (28.5%) and an operating margin of 7.0% (-1.7%). Organic sales growth was 1% for the Group, despite headwind from exited non-strategic contracts.
We continue to invest in our competitive 5G-ready portfolio to enable our customers to efficiently migrate to 5G. Operators around the world plan for launching 5G services, led by North America. The strong customer interest in 5G generates a gradual increase in costs for field trials. We expect the costs to remain on high levels, at least for the coming 12-18 months, and they are included in our 2020 profitability target of at least 10%."
Highlights:
- Ericsson says it is continuing to cooperate with the U.S. Securities and Exchange Commission and Department of Justice regarding an investigation that is ongoing since 2015 into its business practices. On a conference call, the company confirmed that dozens of employees have been dismissed because of the issue.
- Ericsson remains confident in reaching its long-term target of at least 12% operating margin beyond 2020.
- Networks sales adjusted for comparable units and currency increased by 5% YoY, driven by strong sales growth in North America as well as sales growth in Europe and Latin America.
- Digital Services sales adjusted for comparable units and currency decreased by -6% YoY mainly due to continued decline in legacy product sales.
- Managed Services sales adjusted for comparable units and currency declined by -8% YoY, mainly as a result of customer contract reviews.
- Networks gross margin improved to 41.5% (34.8%) with an organic sales growth of 5%.
- Digital Services gross margin improved to 36.9% (32.0%) YoY, but declined QoQ.
- In Managed Services, gross margin improved to 12.9% (-4.0%) supported by efficiency gains and customer contract reviews.
- Restructuring charges for the full year remain unchanged at SEK 5-7 billion.
