Ericsson President and CEO Börje Ekholm said customer spending will increase in the second half of the year
Ericsson has beat forecasts for the first quarter of 2024, with operating profit — excluding restructuring charges — hitting approximately $394 million, despite a 15% sales drop. Networks sales was the biggest culprit, with sales from the unit falling 19%.
However, in a statement, Ericsson President and CEO Börje Ekholm predicted that customer spending will increase in the second half of the year, leading to more stable sales as a result of recent contract wins and normalization of 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,” he continued.
But Ekholm also warned that the RAN market is expected to continue its decline “at least through the end of this year,” citing customer investment. “Dell’Oro estimates the global RAN equipment market will decline by -4% in 2024, which may prove optimistic,” he said.
The company’s enterprise strategy is to look beyond supporting traffic growth alone for revenue growth by leveraging network capabilities, shared Ekholm. “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,” he said.
He also referenced recent partnerships with Verizon, AT&T, Amazon Web Services and KDDI, which he said demonstrate that Ericsson has taken “critical steps” towards building a “Global Network Platform for network APIs.”
“Exposing network features through APIs will support the creation of new differentiated services and will be crucial in the next step of digitalization of enterprise and society,” added Ekholm.
Additional takeaway from the Q1 results include:
- 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%).
- EBITA excluding restructuring charges amounted to SEK 5.1 (4.8) b. with a margin of 9.6% (7.7%), which included a one-time gain of SEK 1.9 b. Reported EBITA was SEK 4.9 (3.8) b.
- Net income was SEK 2.6 (1.6) b. EPS diluted was SEK 0.77 (0.45).
- Free cash flow before M&A was SEK 3.7 (-8.0) b. reflecting improved management of working capital.
- Net cash on March 31, 2024, was SEK 10.8 b. compared with SEK 7.8 b. on December 31, 2023.
