Earnings

Ericsson earnings: 5G will save us

Ericsson
  • Q1 revenue: 49.8 billion SEK (~$4.94 billion) (+2% YoY, -25% QoQ, vs. $5.54 billion expected)
  • Q1 earnings: 2.3 billion SEK (~$0.23 billion) (-5% YoY, -49% QoQ)
  • Q2 guidance: Financial targets for 2020 and 2022 unchanged, likely some softness in Q2 2020.

The big number: Even with the spread of COVID-19, Ericsson's earnings were surprisingly resilient. President and CEO Börje Ekholm said that the company's improvement in its gross margin was a strong indicator of how well its current strategy is working. Its margin was up to 39.8% (from 38.4% in the same period last year.)

People are talking: "We expect our industry to show resilience throughout the pandemic and we are well positioned with a competitive 5G product offering and cost structure," Ekholm wrote.

Opportunities: According to Ericsson, the current pandemic has shown just how vital telecommunications infrastructure is. The company was already one of the few major non-Chinese players in 5G hardware and said that it's signed contracts with leading network operators that will "start generating material revenues" in 2021, with the company adding that it expects increased investment in 5G infrastructure in North America in the second half of this year. "With current visibility we have no reason to change our financial targets for 2020 and 2022," Ekholm wrote.

Threats: While the long-term future may still look bright, things will likely be rocky in the next quarter. Ekholm said that the second quarter may be "a tad softer" than normal given the uncertainty that COVID-19 has sown around the world. He added that while the company's own business is generally operating well under a remote-work order, it's possible that the longer the restrictions on movement carry on in countries around the world, the more likely it will be that there are disruptions to Ericsson's supply chains.

"The current global uncertainty requires a humble attitude towards predicting the near-term future," Ekholm wrote.

The power struggle: Ericsson's long-term growth hinges on its ability to continue selling 5G hardware. It's making strides in some regions, but others are lagging. "We are concerned that 5G investments in Europe are delayed," Ekholm wrote, "This means that Europe may fall behind on a critical digital infrastructure for the future."

Ekholm added that he believes governments should encourage investment in 5G as a way to restart their economies — but that may prove more challenging in some European countries than others.
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