Ericsson reported Q4 2022 sales growth in North America – mainly from 5G Core contracts - offset by declines in IPR revenues and previously announced charges, including the DOJ provision, IoT divestment and Cloud Software and Services contract and portfolio exits. EBITA excluding restructuring charges amounted to SEK 9.3 (12.8) b. with an EBITA margin of 10.8% (17.9%). EBITA was impacted by the previously announced charges.
Ericsson's CEO, Börje Ekholm, provides the following update:
"With our fourth quarter result we are on track to deliver on our long-term EBITA target of 15-18% by 2024. We remain fully committed to our strategic ambitions and have full confidence in the long term. During the quarter, we made measurable progress towards achieving these ambitions, against a backdrop of broad macroeconomic headwinds. As we said during our Capital Markets Day, there are near-term uncertainties, however, we are still in the early phase of global 5G rollout and widespread enterprise digitalization."
"Our strategy remains rooted in driving sustainable growth and maximizing value across all stakeholders. We are confident that we have the right team and strategy in place to extend our leadership in mobile networks; achieve profitability in Cloud Software and Services; execute in our high growth Enterprise segment; shape the industry landscape by becoming a platform company leveraging the 5G innovation platform; and continue our unwavering commitment to a culture of integrity."
"This quarter, we signed a multiyear IPR patent license agreement with a major licensee. This positive outcome positions us well to capture further 5G patent license agreements among handset manufacturers and in new areas such as consumer electronics and IoT. We expect significant IPR revenue growth over the coming 18-24 months."
"Group Net Sales grew by 1% YoY, of which IPR revenues contributed with 5 percentage points. EBITA of SEK 9.3 (12.8) b. corresponds to a margin[2] of 10.8% (17.9%). The positive impact from higher IPR revenues was offset by expected business mix shift and previously announced charges of SEK -4 b. We executed on our ambition to reduce inventory contributing to our free cash flow before M&A of SEK 16.9 (13.5) b."
"Our Networks business grew in India on the back of significant market share gains. As anticipated, the growth from share gains in several markets could not fully compensate for reduced operator capex and inventory reductions in other markets, including North America. Gross margin[2] was 44.6% (46.4%), negatively impacted by this business mix shift including a higher share of services sales from large network rollout projects. The IPR patent license agreement had positive margin impact."
"During the quarter, we were able to largely offset the impact of high inflation with commercial activities, including product substitution. We continue to invest in technology to enhance performance and cost leadership, expand our global footprint and improve productivity and capital efficiency across the supply chain."
"In Cloud Software and Services, organic sales decreased by -2% excluding IPR revenues. Sales growth in North America – mainly from 5G Core contracts – was offset by a decline in other market areas. We remain committed to improving profitability and are on a clear path to reaching operating profit break-even for full-year 2023 by limiting subscale software development, accelerating automation, and changing focus from market share gains to profitability. In Q4, we decided to exit certain subscale business, with a one-off charge."
"Within Enterprise, we continue to leverage our strength in mobile networks to accelerate our business. Organically, sales grew by 15%. Our Enterprise strategy is underpinned by two pillars: First, our Enterprise Wireless Solutions business, focused on capturing the multi-billion-dollar enterprise market opportunity for 5G optimized networking and security solutions. Second, through the Global Communication Platform business, we will enable new ways of monetizing 5G by transforming how network features such as speed and latency are globally exposed, consumed and paid for. Enterprise is a growth engine for the company, and we continue to fine-tune our portfolio to maximize profitability. To this end, we announced the divestment of our loss-making IoT business in Q4. We continue to invest to strengthen our enterprise go-to-market channel and broaden our enterprise product portfolio. In addition, we are increasing our investments in developing the network APIs that will underpin the long-term growth in Global Communication Platform. From 2024 and beyond our enterprise business will be a major driver of Ericsson’s long-term growth and profitability, however, these investments will weigh on profitability during 2023."
"We remain positive on the long-term outlook for our business. However, the near-term outlook, as we also described at our Capital Markets Day, remains uncertain. We expect operators to continue to sweat assets in response to macroeconomic headwinds. In addition, we expect operators to adjust inventory levels as supply situation eases. These trends started to impact Networks in Q4 and we expect them to continue at least during the first half of 2023. At the same time, we expect good growth from market share wins, albeit not fully offsetting the near-term headwinds. In the longer-term, capex is driven by traffic growth. Given near-term macroeconomic headwinds, we expect Enterprise to grow somewhat slower than during 2022."
