Ericsson reported strong 5G sales overall for Q3 2021 and confirmed that it has now secured 5G contracts with all three tier-1 US carriers. Excluding the sales reduction in Mainland China, Ericsson reported +6% organic growth overall with bross margin 44.0%1 and EBIT margin 15.7% - both improvements quarter-over-quarter and year-over-year.
Ericsson also said some sales were impacted in Q3 by supply chain issues.
Comments from Börje Ekholm, President and CEO of Ericsson:
"We continue to win footprint across our business by leveraging our competitive 5G portfolio. The 5G contracts now awarded by all three tier-1 US carriers are the largest in Ericsson’s history. Gross margin[ was further strengthened, both sequentially and year over year and reached 44.0% (43.2%). EBIT margin reached 15.7%, and free cash flow before M&A was SEK 13.0 b. Through continuous measures for global supply chain resilience, we avoided customer impact during the first half of the year. However, late in Q3 we saw some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk. While we continued to gain share in a growing market, the expected sales reduction in Mainland China, lower variable sales in Managed Services and some supply chain disturbances, led to a negative organic sales development of -1%."
Networks sales were stable YoY, despite considerably lower volumes from Mainland China, reflecting market share gains in other markets. Excluding sales in Mainland China, Networks sales increased by 8% in the third quarter compared to the same period last year. However, late in Q3 we experienced some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk. Gross margin improved to 47.8% (46.7%), driven by operational leverage and higher IPR revenues."
"Digital Services sales grew by 1% despite a stark sales reduction in Mainland China. Excluding sales in Mainland China, Digital Services sales increased by 6% in the third quarter compared to the same period last year. We are starting to see initial revenues from 5G contracts, driving growth in our Core business. Gross margin was 42.3% (43.5%), impacted mainly by initial deployment costs in cloud native 5G Core projects. We continue to increase our R&D investments in the 5G portfolio, including Core and orchestration, further strengthening our competitive position. With increasing sales in combination with a higher share of software sales, we expect profitability to gradually improve and over time exceed our original target of EBIT margin of 10%-12%.
"As a consequence of the reduced market share in Mainland China we are planning to resize our sales and delivery organization in the country, starting in Q4, adding to our restructuring charges."
