Falling sales, restructuring take Ericsson to Q2 loss

Falling sales, restructuring take Ericsson to Q2 loss

Business news |
By Nick Flaherty

Telecoms equipment maker Ericsson has posted a loss for the second quarter of 2023 as the result of falling sales and restructuring charges.

The company saw organic sales decline by 9% year on year to SEK 64.4bn (€5.6bn, $6.31bn), driven by a 13% fall in the networking business and only partly offset by a 20% increase in enterprise sales. The sharp decline in sales in North America was partly offset by strong sales development in India. 

Overall the net loss at Ericsson was SEK600m (€52m, $59m), down from a profit of SEK4.7bn. This was primarily due to restructuring charges from selling its IoT business. Free cash flow before M&A costs was also negative at SEK -5.0bn, impacted by the lower income, payments to U.S. Department of Justice (DOJ) and increased working capital. Net cash on June 30, 2023, was SEK 1.9 bn compared with SEK 13.6 b. on March 31, 2023. 

“Despite challenging market conditions we delivered a solid quarter, meeting expectations,” said Börje Ekholm, President and CEO of Ericsson. “We continue to execute with discipline and focus without losing sight of the long term. We are leveraging our 5G technology, growing our enterprise business and driving our cultural transformation to accelerate our growth trajectory and shape the communications industry landscape.” 

“Performance in Q2 was in line with our expectations, despite the uncertain macro backdrop and significant changes in market mix. This is a testament to our strategy, the excellence of our portfolio, and our ability to adapt and execute.” 

“In Networks, we saw strong execution with record build-out speed in India, where we now have a leading market share. Sales growth in India partly offset the expected softening we saw in other markets, notably in North America, where build-out pace moderated and customer inventory levels were reduced.”

“In Cloud Software and Services, we continue to execute on the turnaround, including exiting subscale business and improving delivery efficiency. In Enterprise we saw continued strong growth in Enterprise Wireless Solutions.”

Ericsson is looking to monetise its 5G patent portfolio.

“We landed another important 5G licensing agreement with a device vendor, further validating our IPR portfolio strength, positioning us well for continued IPR growth as we license vendors previously unlicensed for 5G,” said Ekholm.

“We are well on track to reduce our annual run rate by at least SEK 11 bn by year-end, which will positively impact the P&L over the coming quarters with full effect during 2024. We expect an improvement in cash flow during the second part of the year and gradually move towards our long-term target of 9-12% of Net sales. 

For Q3 it expects similar market mix and trends as in Q2, with the same profits, followed by a seasonally stronger Q4, but it is banking on a recovery in the consumer market.

“As we look ahead, a fundamental driver of network capex is the continued rapid data traffic growth,” said Ekholm. “Average smartphone usage is expected to exceed 20 GB/month in 2023 with strong growth. 240 operators have launched 5G, bringing new revenue growth with pricing model innovation. We forecast 5G subscriptions to top 1.5 billion by end-2023 and reach 4.6 billion by 2028. Fixed Wireless Access (FWA) also grows quickly, driving further traffic growth. 

“Traffic growth and operators’ desire to meet expectations for network quality with cost and energy efficiency, will stimulate investments. We estimate 75% of all base station sites outside China are not yet updated with 5G mid-band, and migration to 5G standalone will continue in order to deliver on 5G’s full potential. 

“We are confident that the market will recover as a consequence of these factors, and Ericsson is well positioned to benefit from increased investments. The exact timing of these increased network investments is, of course, in the hands of our customers, but we expect that the market will see a gradual recovery in late 2023 and improve in 2024.”


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