ERIC Ericsson

   By Dominic Chopping 
 

STOCKHOLM--Sweden's Ericsson AB reported second-quarter earnings Friday. Here's what we watched:

EARNINGS FORECAST: The telecoms-equipment maker reported second-quarter net profit attributable to shareholders of 2.45 billion Swedish kronor ($269.6 million), up from SEK1.71 billion for the year-earlier period and sharply higher than the SEK1.67 billion expected in a consensus provided by FactSet.

REVENUE FORECAST: Sales rose 1.4% to SEK55.58 billion, driven by its key networks unit. Analysts polled by FactSet had expected sales of SEK55.16 billion.

WHAT TO WATCH:

5G PROGRESS: Ericsson's networks unit grew strongly in North America and Northeast Asia while sales declined in Latin America and India. It said momentum in North America remains strong and the market is estimated to grow 4% in 2020. Momentum is supported by the closing of the Sprint-T Mobile merger, upcoming spectrum auctions and an overall demand for 5G. "As we prepare to exit the crisis caused by Covid-19, there is a need to restart economies and make strategic, forward-looking investments which we suggest must include the future digital infrastructure," CEO Borje Ekholm said. "We see many regions around the world increasing investments in this space and as a European company we are concerned that Europe will fall behind."

MARGINS: Gross margins at the networks unit slipped to 40.2% from 41.4% as it booked a previously announced SEK900 million write-down on inventory in China and took more lower-margin strategic contracts in the country to build market position. The company has previously said that it was taking an increasing share of strategic contracts--which hurt profits in the short term but should boost margins over the long term--to boost market share.

GUIDANCE: Ericsson backed its full-year guidance after experiencing limited impact from Covid-19 in the second quarter, but cautioned that while some customers are accelerating their investments, others are temporarily cautious. Ericsson 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.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

July 17, 2020 08:17 ET (12:17 GMT)

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