Citing a steep decline in Network sales to mobile operators, Ericsson reported overall Q1 sales of SEK 53.3 billion, a 14% drop from a year earlier. Gross income excluding restructuring charges decreased to SEK 22.8 (24.9) billion as lower sales were partly offset by an improvement in gross margin. Reported gross income was SEK 22.7 (24.2) billion. Gross margin excluding restructuring charges improved to 42.7% (39.8%) supported by a competitive product portfolio, cost actions, improved commercial discipline, as well as increased IPR licensing revenues. Reported gross margin was 42.5% (38.6%). Net income was SEK 2.6 (1.6) billion. EPS diluted was SEK 0.77 (0.45).
Comments from Börje Ekholm, President and CEO of Ericsson:
"In Q1, we continued to execute on our strategy to strengthen our leadership in mobile networks, drive a focused expansion in enterprise, and pursue cultural transformation. We maintained our leading market position, but as expected our customers continued to exercise caution with their investments. Against this tough market backdrop, we delivered solid expansion in gross margins. This underscores the competitiveness of our solutions, our commercial discipline, and our actions on costs. We will continue to proactively optimize the business, including through strategic cost-saving measures, to ensure Ericsson is best positioned to increase shareholder value."
"We expect a further decline in the RAN market, at least through the end of this year, as customers remain cautious with their investments and the pace of investment in India continues to normalize. Dell’Oro estimates the global RAN equipment market will decline by -4% in 2024, which may prove optimistic."
"If current trends persist, we expect our sales to stabilize during the second half of the year, benefiting from recent contract wins and the normalization of customer inventory levels in North America. In Q2, we expect Networks gross margin excluding restructuring charges to be in the range of 42-44%. In the second half, our margins should benefit from improved business mix. We also remain highly focused on delivering stronger cash flow, based on our operating discipline. "
"Our enterprise strategy aims to leverage network capabilities to increase telecoms industry revenue growth above the level that traffic growth alone could deliver. We are creating new, differentiated, products and services, supporting our customers in this transformation. In turn, this will support industry investment levels in the longer term."
"While near-term dynamics are challenging, we remain fully committed to our long-term targets, and we continue to be focused on increasing shareholder value."
Highlights
Networks Sales: Ericsson experienced a 19% organic decrease in year-over-year sales in the Networks segment as customers remained cautious in their investments. Despite this downturn, Ericsson maintained a strong gross margin of 44.3%, highlighting the strength of its technology leadership, competitive product offerings, and strategic cost management efforts.
Cloud Software and Services: Ericsson continued to enhance its delivery performance and commercial discipline within this segment. The gross margin stood at 37.4%, and the EBITA margin improved for the fifth consecutive quarter, reaching a rolling four-quarter EBITA margin of 3.0%.
Enterprise and Global Communications Platform: While Ericsson saw overall organic growth in its Enterprise sales, the Global Communications Platform experienced a decline due to the loss of a low-margin customer contract in Q4 and a strategic scale-back in some countries. Ericsson remains focused on utilizing its existing business to further develop its Global Network Platform for network APIs.
Intellectual Property Revenues (IPR): Ericsson's IPR revenues increased, bolstered by a new 5G patent license agreement with a handset manufacturer. Ericsson is optimistic about future growth in IPR revenues, driven by additional 5G agreements and expansion into new licensing areas, although the timing of contracts may vary.
