5G Businesses Steer Ericsson’s Q1 Results – 2019

Ericsson has reported its first quarter(Q1) results 2019. Two-year average sales seasonality between Q1 and Q2 is 10%. However, the Swedish networking giant stated, current sales level in North America is expected to remain, leading to lower effects from seasonality between quarters than normally throughout 2019.

Gross margin was 38.4% (34.2%) driven by improvements in Networks and Managed Services.

Net income was reported to be improved to SEK 2.4 (-0.7) b. The acquisition of antenna and filter assets from Kathrein is expected to close Q3.

Börje Ekholm, President and CEO of Ericsson, said, for the third consecutive quarter we showed organic sales growth, this quarter by 7%. Growth was mainly driven by North America. Our strategy, to work with lead customers in lead markets, is generating both 5G business and hands-on experience in 5G rollout and commercialization. To date we have publicly announced commercial 5G deals with 18 named operator customers, which, at the moment, is more than any other vendor.

5G services, including mobility, have been launched in South Korea and North America. While Switzerland has released spectrum allowing Swisscom to offer commercial 5G services, using our equipment, the development in other parts of Europe is considerably slower primarily due to lack of spectrum, poor investment climate and additional uncertainties related to future vendor market access, noted Ekholm.

Key Nuggets from Ercisson’s Financial Results Include:

• Segment Networks had a strong quarter with an organic sales growth of 10% YoY, driven by increased investments in North America.
• Networks gross margin improved to 43.2% (40.4%) YoY, mainly due to higher hardware capacity sales and IPR revenues.
• In Managed Services, sales fell organically by -5% due to headwind from contract exits.
• In the quarter, our Operations Engine was launched with good response from our customers.
• Gross margin improved to 17.7% (9.1%) YoY, supported by efficiency gains and customer contract reviews.
• Excluding a non-recurrent positive effect of SEK 0.7 b. from a customer settlement, the operating margin[2] was 8.6%, exceeding the higher range of our financial target for 2020.
• Organic sales in Digital Services were stable YoY.
• Organic sales growth in segment Emerging Business and Other was 38% YoY driven by growth in iconectiv. Gross margin[2] was stable YoY.

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