Growing 5G demand boosts Ericsson's net sales, offsetting profit dip in Q2

Ericsson, the Swedish telecom equipment manufacturer, experienced a significant decline in adjusted operating profit for the second quarter, although it surpassed market expectations. The company reported a 62 per cent decrease in operating profits, excluding restructuring charges, which amounted to 2.8 billion Swedish crowns ($271 million), compared to 7.4 billion crowns the previous year.

Despite this decline, Ericsson's net sales saw a 3 per cent increase, reaching 64.4 billion crowns, surpassing analyst expectations of 63.9 billion crowns. The company's performance in net sales can be attributed to the growing demand for 5G technology.

CEO Borje Ekholm expressed optimism about the future, predicting a gradual recovery of the market by late 2023, with further improvement in 2024. The increasing demand for 5G infrastructure and services is expected to drive Ericsson's growth in the coming years.

However, the reported gross margin for the second quarter dipped to 37.4 per cent compared to 38.6 per cent in the previous quarter. This decline indicates the challenges faced by Ericsson in maintaining profitability in the current market landscape.

“Building on our strong position and despite challenging market conditions we delivered a solid quarter – meeting expectations. 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,” Ekholm said.

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To mitigate the impact of reduced spending among its telecom operator customers, Ericsson has undertaken cost-cutting measures in recent months. In February, the company announced plans to lay off 8,500 employees. These efforts are expected to yield savings of 2 billion crowns ($193 million) in costs. Ericsson anticipates that the effects of these cost-cutting activities will become increasingly visible in the upcoming quarters.

India Highlights

There is continued momentum in India which is now Ericsson’s second-largest market. In Q2 India stands second amongst the top 5 countries in net sales (contributing 14 per cent)  after the United States.

In market areas South East Asia, Oceania and India, sales adjusted for comparable units and currency increased by 71 per cent YoY primarily driven by 5G market share gains in India; Reported sales in the region increased by 74 per cent YoY.

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