July 17, 2020 / 5:37 AM / 18 days ago

Rise in 5G sales buoys Ericsson's quarterly profit

STOCKHOLM (Reuters) - A rise in 5G network sales and software revenue helped Ericsson (ERICb.ST) report higher-than-expected quarterly core earnings on Friday, when it said it was sticking to its financial targets for 2020 and 2022.

FILE PHOTO: A general view of an exterior of the Ericsson headquarters in Stockholm, Sweden, January 24, 2020. TT News Agency/Fredrik Sandberg via REUTERS

The Swedish company has experienced a recovery under Borje Ekholm - a former CEO of Investor AB (INVEb.ST) - who took the position in 2017, having been chosen to steer the company through one of its deepest crises.

Ericsson and Finland’s Nokia (NOKIA.HE) are expected to benefit from Britain’s decision this week to ban Chinese supplier Huawei [HWT.UL] from next-generation 5G networks.

Sales in Ericsson’s mainstay network business grew 4% in the second quarter, mostly due to contract wins in China. It won a share of 5G business - alongside Chinese giants Huawei and ZTE - from the country’s three largest telecom operators: China Mobile, China Telecom and China Unicom.

The company’s shares were up 10% at 0818 GMT

“On paper (the UK ban) should be a tremendous opportunity for Ericsson, particularly if there is contagion to other markets,” Ben Wood, chief analyst at CCS Insight, told Reuters.

Despite the economic uncertainty over the COVID-19 pandemic, many telecom operators around the world have been moving ahead with plans to upgrade to 5G networks. Ericsson had said it has won 99 commercial 5G contracts, while Nokia has said it has 79.

There has been an increasing network build-up in China, Europe and North America, but some operators in Latin America and Africa have been more cautious, Ericsson’s Chief Financial Officer Carl Mellander told Reuters.

“So far during these five months it (the pandemic) has been going on, we have coped well,” he said.

TARGETS

While the company is keeping its forecast for 2020 and 2022, its digital services business is likely to miss its target this year, Ekholm said.

Ericsson has a 2020 group sales target of 230-240 billion Swedish crowns ($25.3-26.4 billion), and an adjusted operating margin goal of more than 10%; for 2022 it has an adjusted operating margin goal of 12-14%.

The company does not have targets for 2021.

The digital services unit, which includes cloud-based services, saw a hit to sales due to the pandemic. High-margin software sales increased though.

The group’s gross margin rose to 38.2% in the second quarter from 36.7% in the year-ago period.

The company’s adjusted quarterly operating earnings rose 18% to 4.5 billion Swedish crowns, beating a mean forecast of 3.36 billion crowns in Refinitiv poll of analysts.

Total revenue rose 1% to 55.6 billion crowns.

($1 = 9.0790 Swedish crowns)

Reporting by Helena Soderpalm and Supantha Mukherjee; Editing by Rashmi Aich and Pravin Char

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