Ericsson second quarter profit rises

Ericsson second quarter profit rises

Ericsson reported its second-quarter 2020 results, which shows that the gross margin was higher than expected. Ericsson’s position could also be strengthened if more countries follow the U.K. and ban Huawi from 5G. Company is ready to deliver larger volumes of equipment if Huawei bans spread. Omantel has selected Ericsson (NASDAQ: ERIC) to support the Sultanate’s ongoing 5G radio access network (RAN) deployment plans in a multi-year partnership.

The Stockholm-based company on Friday reported second-quarter sales of 55.6 billion kronor ($6.1 billion), compared with the average analyst estimate of 54.8 billion kronor. Its adjusted gross margin was higher than expected, at 38.2%. Redoubled investments are partly driven by competition between carriers on new fifth-generation mobile networks in some markets, said Chief Financial Officer Carl Mellander. Ericsson’s position could also be strengthened if more countries follow the U.K. and ban its Chinese rival Huawei Technologies Co. from 5G. Mellander said Ericsson is ready to deliver larger volumes of equipment if Huawei bans spread, Bloomberg reported.

"The human toll caused by Covid-19, directly and indirectly through a weak economy, is increasingly clear. We continue to put safety of our people as first priority, and more than 80% of our employees are currently working from home," said Börje Ekholm, President and CEO of Ericsson.

The strengthened market position in Mainland China is strategically important for Ericsson as this market is expected to be a driver of critical future requirements and provide us with important scale. The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2.

Few days ago, it was announced that Omantel has selected Ericsson (NASDAQ: ERIC) to support the Sultanate’s ongoing 5G radio access network (RAN) deployment plans in a multi-year partnership. Hardware and software products and solutions from the Ericsson Radio System portfolio, including Advanced Antenna Systems and 3GPP standards-based 5G New Radio (NR), will be deployed in Omantel’s network. Ericsson will support Omantel’s commercial 5G deployment at key locations across Oman, including Salalah, Nizwa and Sur.

Ericsson technology will enable Omantel to expand coverage while simultaneously providing a network fit for the future. Ericsson’s high-speed and low-latency 5G technology will allow Omantel to meet growing data traffic demands and deliver high-quality fixed wireless access, as well as enhanced mobile broadband experiences. 

According to the second quarter results, gross margin excluding restructuring charges improved to 38.2% (36.7%), including the earlier communicated inventory write-down related to Mainland China (SEK -0.9 b., which equals to -1.6 percentage points). Also, Operating income excluding restructuring charges improved to SEK 4.5 b. (8.2% operating margin) from SEK 3.9 b. (7.0% operating margin) driven by improvements in segment Digital Services.

Moreover, networks sales increased by 4% YoY. Networks operating margin excluding restructuring charges was 14.1% (15.0%) impacted by strategic contracts and the inventory write-down, partly compensated by operational leverage and a favorable business mix.

Ericsson said it still targets 2020 sales of between SEK230 billion and SEK240 billion with an operating margin excluding restructuring charges at more than 10% of sales. The 2022 margin target is 12%-14%, excluding restructuring charges. R&D investments in digital services are being accelerated to capture additional business opportunities. Combined with lower sales, this will likely cause a delay of some quarters in reaching the 2020 target of low single-digit margin for the segment. The 2022 operating margin target for digital services of 10-12% remains firm, MarketWatch wrote.

The British government declared that, it will bar telecom companies from purchasing new equipment made by Huawei Technologies Co. and told them to remove its technology from their 5G networks until 2027. Read more.

Author: The FINANCIAL