Ericsson

First quarter highlights – Driving gross margin improvements and cost efficiencies

• Sales declined organically[1] by -14% YoY, due to a -19% decline in Networks. Reported sales decreased to SEK 53.3 (62.6) b.
• Gross income excluding restructuring charges decreased to SEK 22.8 (24.9) b. as lower sales were partly offset by an improvement in gross margin. Reported gross income was SEK 22.7 (24.2) b.
• Gross margin excluding restructuring charges improved to 42.7% (39.8%) supported by a competitive product portfolio, cost actions, improved commercial discipline, as well as increased IPR licensing revenues. Reported gross margin was 42.5% (38.6%).
• EBITA excluding restructuring charges amounted to SEK 5.1 (4.8) b. with a margin of 9.6% (7.7%), which included a one-time gain of SEK 1.9 b. Reported EBITA was SEK 4.9 (3.8) b.
• Net income was SEK 2.6 (1.6) b. EPS diluted was SEK 0.77 (0.45).
• Free cash flow before M&A was SEK 3.7 (-8.0) b. reflecting improved management of working capital.
• Net cash on March 31, 2024, was SEK 10.8 b. compared with SEK 7.8 b. on December 31, 2023.

[1] Sales adjusted for comparable units and currency
[2] Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements.

Comments from Börje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)

In Q1, we continued to execute on our strategy to strengthen our leadership in mobile networks, drive a focused expansion in enterprise, and pursue cultural transformation. We maintained our leading market position, but as expected our customers continued to exercise caution with their investments. Against this tough market backdrop, we delivered solid expansion in gross margins. This underscores the competitiveness of our solutions, our commercial discipline, and our actions on costs.

We will continue to proactively optimize the business, including through strategic cost-saving measures, to ensure Ericsson is best positioned to increase shareholder value.

Q1 – Market headwinds and execution focus

While organic sales[1] declined by -14%, we reached a gross margin[2] of 42.7%, generated EBITA[3] of SEK 5.1 billion and a 9.6% EBITA margin[3].

Networks sales[1] decreased organically by -19% YoY as our customers continued to be cautious with their investments. Despite this, we generated a strong gross margin[2] of 44.3% – a testament to our technology leadership, our competitive product portfolio, and the strategic actions we are taking, including on costs.

In Cloud Software and Services, we continued to execute on our strategy to strengthen delivery performance and commercial discipline. We delivered a gross margin[2] of 37.4% and our EBITA margin[2] improved year-on-year for a fifth consecutive quarter. The rolling four quarter EBITA margin[2] was 3.0%.

In Enterprise, sales grew organically overall but declined in Global Communications Platform, impacted by a low-margin customer contract loss in Q4 and our decision to reduce our operations in some countries, with the impact expected to continue throughout the year. We continue to focus on leveraging the current business to support the build-out of our Global Network Platform for network APIs.

Our IPR revenues continued to grow, with a new 5G patent license agreement with a handset manufacturer. We are confident of delivering further growth in IPR revenues, benefiting from additional 5G agreements and an expansion into additional licensing areas. The timing of contracts will fluctuate, as we seek to optimize the value of new agreements.

We delivered SEK 3.7 billion of free cash flow[4] in Q1, benefiting from our operational improvements, and lower working capital as we concluded an intense 5G roll-out phase in India.

We announced further measures in the quarter to improve our cost efficiency and streamline operations, including headcount reductions. This is a necessary action to position the Company for longer-term success.

In March, our independent Monitor certified our compliance program. This is an important step to conclude our plea agreement. Our focus on culture and integrity will continue.

Executing on our strategy

Our strategy is aimed at building a stronger and more profitable Ericsson in the long term, with a vision to capture the next major wave of networks innovation with a substantial platform business.

At Mobile World Congress in Barcelona, we showcased industry-leading hardware and software solutions required in order to build the high-performance and programmable networks necessary to digitalize society. Our industry is shifting from a vertically integrated architecture to a horizontal and cloud-based network architecture – and Ericsson is leading this development.

We also took critical steps in our strategy to build a Global Network Platform for network APIs, and announced three key partnerships with Verizon, AT&T and Amazon Web Services, as well as a communications API agreement with KDDI. Exposing network features through APIs will support the creation of new differentiated services and will be crucial in the next step of digitalization of enterprise and society.

Looking ahead

We expect a further decline in the RAN market, at least through the end of this year, as customers remain cautious with their investments and the pace of investment in India continues to normalize. Dell’Oro estimates the global RAN equipment market will decline by -4% in 2024, which may prove optimistic.

If current trends persist, we expect our sales to stabilize during the second half of the year, benefiting from recent contract wins and the normalization of customer inventory levels in North America. In Q2, we expect Networks gross margin excluding restructuring charges to be in the range of 42-44%. In the second half, our margins should benefit from improved business mix. We also remain highly focused on delivering stronger cash flow, based on our operating discipline. 

Our enterprise strategy aims to leverage network capabilities to increase telecoms industry revenue growth above the level that traffic growth alone could deliver. We are creating new, differentiated, products and services, supporting our customers in this transformation. In turn, this will support industry investment levels in the longer term.

While near-term dynamics are challenging, we remain fully committed to our long-term targets, and we continue to be focused on increasing shareholder value.

Börje Ekholm

President and CEO

[1] Sales adjusted for comparable units and currency.
[2] Excluding restructuring charges.
[3] Excluding restructuring charges. Includes a one-time gain of SEK 1.9 b., reported in segment Other.
[4] Before M&A.

NOTES TO EDITORS

You find the complete report with tables in the attached PDF or on www.ericsson.com/investors

Video webcast for analysts, investors and journalists

President and CEO Börje Ekholm and CFO Lars Sandström will comment on the report and take questions at a video webcast at 9:00 AM CEST (8:00 AM GMT London, 3:00 AM EST New York).

Join the webcast or please go to www.ericsson.com/investors

To ask a question:Access dial-in information here

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FOR FURTHER INFORMATION, PLEASE CONTACT

Contact person

Daniel Morris, Head of Investor Relations
Phone: +44 7386657217
E-mail: investor.relations@ericsson.com

Additional contacts

Stella Medlicott, Senior Vice President, Marketing and Corporate Relations
Phone: +46 730 95 65 39
E-mail: media.relations@ericsson.com

Investors

Lena Häggblom, Director, Investor Relations
Phone: +46 72 593 27 78
E-mail:  lena.haggblom@ericsson.com

Alan Ganson, Director, Investor Relations
Phone: +46 70 267 27 30
E-mail: alan.ganson@ericsson.com

Media

Ralf Bagner, Head of Media Relations
Phone: +46 76 128 47 89
E-mail: ralf.bagner@ericsson.com

Media relations
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com

This is information that Telefonaktiebolaget LM Ericsson is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 07:00 CEST on April 16, 2024.