Driven by 5G growth in Networks in North America and North-East Asia, Ericsson reported Q2 sales of SEK 54.8 billion, up 10% from the same period in 2018 and up 7% YoY when adjusted for comparable units and currency. GAAP net income for the quarter was SEK 1,705 million ($180.4 million) or SEK 0.51 (5 cents) per share against net loss of SEK 1,885 million or loss of SEK 0.58 per share in the prior-year quarter. Gross margin improved to 36.6% compared to 34.8% a year earlier.
The company reported strong uptake for its 5G Radio and Core solutions and said it is confident in reaching its 2020 and 2022 financial projections.
Börje Ekholm, President and CEO of Ericsson, stated " 5G momentum is increasing. Initially, 5G will be a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with IoT use cases, leveraging the speed, latency and security 5G can provide. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses."
Some additional highlights:
- Networks recorded organic sales growth of 11% YoY. This was driven by 4G and 5G investments in North America and North East Asia as well as increased volumes related to strategic contracts.
- Ericsson recently announced plans to open a 5G production site in the US to ensure that it will meet customer requirements for fast and agile deliveries.
- In Digital Services, the company continues to execute on the plan to reach low single-digit margins for 2020. Organic sales in Digital Services were down by -3% YoY as a result of rapid decline in legacy products. Gross margin was 37.1% (42.6%). The decline in gross margin was mainly driven by a change in sales mix. The mix may vary between quarters. Our 5G and Cloud native portfolio is gaining customer traction and we are increasing related R&D investments to ensure portfolio readiness. The reshaped BSS strategy is gaining momentum and contracts were signed with several new customers in the quarter. The share of recurrent business is increasing and the company is tracking towards having 75% of the 45 critical and non-strategic contracts addressed by year-end and we have cost efficiency programs in place throughout Digital Services.
- In Managed Services the strategy is to enhance the customer offering by relying more on automation, machine learning and AI, which will longer-term change and improve the margin profile of the business. Near-term margins are negatively impacted by the increase in R&D investments. Organic sales declined by -6%, mainly explained by the negative effect from the customer contract reviews. Gross margin declined to 12.3% (14.0%) YoY, negatively impacted by timing of costs.
