Ericsson Q4 Sales Up 10%, Loss Margin Narrows By 65%

Ericsson Friday reported a 10% rise in its net sales of SEK 63.8 billion in Q4 ended December 2018 as against SEK 57.9 billion a year ago. On a quarter on quarter basis the growth margin remained at 19% as the Swedish telecom gear maker had posted revenues of SEK 53.8billion in the September quarter.

During the year, the company has also managed to narrow down its loss margin by 65%. In Q4, 2018, Ericsson posted a net loss of SEK 6.5 billion as against SEK 18.5 billion in Q4, 2017.

“Our focused strategy has yielded clear results. Ericsson is today a stronger company. Increased investments in R&D for future growth, managed services contract reviews, combined with efficient cost control have proven to be successful, with improved competitiveness and profitability as a result. As the industry moves to 5G and IoT, we will now take the next step, focusing on profitable growth in a selective and disciplined way,” said Borje Ekholm, President and CEO of Ericsson.

Sales of the company have gradually improved during 2018, resulting in full-year organic sales growth for the first time since 2013. This is partly due to an improved market, but also driven by market share gains in Networks as a result of a more competitive radio product portfolio. In parallel, gross margins have improved across all segments, with full-year gross margin of 35%  and operating margin of 4%.

Ericsson’s Networks segment had another strong quarter with high business activity across multiple regions. Networks organic sales increased by 6% YoY, positively impacted by a recovering RAN market as well as strong performance in the product portfolio. Growth was partly due to a higher than anticipated activity level in North America driven by increased 5G demand among the US operators. Networks gross margin improved to 41% YoY, mainly due to improved hardware margins driven by the successful shift to Ericsson Radio System (ERS). Strategic contracts and 5G field trials had a negative impact on operating margin in the quarter. R&D investments continued to grow in the quarter, but are now expected to flatten out.

In Managed Services, gross margin of the company improved to 12% YoY, supported by efficiency gains and customer contract reviews. We have now addressed all 42 targeted contracts, resulting in an annualized profit improvement of SEK 0.9 billion. During the year, we have increased our investments in automation, analytics and AI.

In Digital Services there has been solid progress in most portfolio areas. Underlying operating expenses in 2018 were SEK 2.6 billion lower than in 2017. However, the Business Support Systems (BSS) area has not shown satisfactory progress and the firm is now in the process of reshaping the business.

To speed up restructuring of the BSS business, additional measures were communicated on January 10, 2019. These measures include provisions and restructuring charges of SEK -6.1 billion, which were taken in Q4. The reshaped strategy will set Digital Services on a stronger path to achieve the 2020 financial targets. Organic sales in Digital Services grew by 5% YoY, driven by Cloud Core and OSS. Gross margin, adjusted for above mentioned provisions, improved to 38%. Operating income, excluding restructuring charges and other costs related to revised BSS strategy, was SEK -0.6 billion in the quarter,”

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