Ericsson reports first quarter results 2024
- Sales declined organically by -14% YoY, with Networks sales decreasing by -19%.
- Reported gross margin improved to 42.5% supported by a competitive product portfolio and cost actions.
- EBITA excluding restructuring charges increased to SEK 5.1 billion with a margin of 9.6%.
- Net income increased to SEK 2.6 billion, with EPS diluted at SEK 0.77.
- Free cash flow before M&A improved to SEK 3.7 billion reflecting better management of working capital.
- Net cash on March 31, 2024, was SEK 10.8 billion compared to SEK 7.8 billion on December 31, 2023.
- Sales declined organically by -14% YoY, with Networks sales decreasing by -19%.
- Reported gross income and EBITA margin saw a decrease compared to the previous year.
- Free cash flow before M&A showed a decline compared to the previous year.
- Net cash at the end of the period decreased by -20% compared to the previous year.
Insights
Ericsson's latest financials indicate a significant organic sales decline of -14%, primarily led by a -19% drop in Networks, showcasing the impact of customer investment caution. However, the silver lining lies in their gross margin improvement to 42.7%, attributed to cost-efficiency measures and commercial discipline. This shows the company's ability to navigate a declining sales environment without a commensurate decline in profitability.
From an investor's perspective, the improvement in net income and diluted EPS, with net income up 66% and EPS up 71%, is a strong signal of Ericsson's cost management and operational efficiency. Meanwhile, the free cash flow turnaround to SEK 3.7 billion, from a negative cash flow in the previous year, suggests robust working capital management and successful culmination of capital-intensive 5G rollouts in specific markets like India.
Looking forward, the expectation of a continued RAN market decline could temper optimism, despite the company's guidance for stable sales in the latter half of the year. Strategic cost-saving initiatives and a focus on cash flow generation are critical as Ericsson navigates market headwinds and aims for long-term shareholder value enhancement.
Ericsson's competitive edge in product offerings and cost management has resulted in a strong gross margin of 44.3% within Networks, despite reduced sales volume. This reflects the company's technological leadership and reinforces its standing in a competitive market. The focus on IPR licensing, including a new 5G patent agreement, suggests a strategic leveraging of their innovation for revenue diversification.
The company's strategic moves, including partnerships with Verizon, AT&T and Amazon Web Services, indicate a shift towards creating a Global Network Platform for network APIs, which could be pivotal in the next wave of digitalization. Such advanced network functionalities could open up new service creation opportunities and are likely to influence investment patterns in the telecom sector.
Ericsson's performance in the face of market headwinds provides insights into the broader telecommunications equipment sector. The decline in sales volume highlights the cautious investment stance of their customers. However, the company's ability to not only maintain but improve margins suggests a strong cost structure and product desirability.
Ericsson's emphasis on the enterprise segment growth, despite setbacks in the Global Communications Platform, indicates a long-term strategy to expand beyond traditional telecom services. The collaborations with industry giants like AWS and KDDI to expose network features through APIs is indicative of a push towards enterprise digitalization, potentially sparking new growth avenues for the industry.
Investors should be aware of the forecasted RAN market decline through the year's end, which could pose risks to sales volume stabilization. The focus on margin health and a resilient enterprise strategy could, however, act as buffers against these market pressures.
- Sales declined organically[1] by -
14% YoY, due to a -19% decline in Networks. Reported sales decreased toSEK 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 wasSEK 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 was42.5% (38.6% ). - EBITA excluding restructuring charges amounted to
SEK 5.1 (4.8) b. with a margin of9.6% (7.7% ), which included a one-time gain ofSEK 1.9 b. Reported EBITA wasSEK 4.9 (3.8) b. - Net income was
SEK 2.6 (1.6) b. EPS diluted wasSEK 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 withSEK 7.8 b. on December 31, 2023.
SEK b. | Q1 | Q1 | YoY | Q4 | QoQ |
Net sales | 53.325 | 62.553 | -15 % | 71.881 | -26 % |
Sales growth adj. for comparable units and currency[2] | - | - | -14 % | - | - |
Gross margin[2] | 42.5 % | 38.6 % | - | 39.8 % | - |
EBIT | 4.100 | 3.046 | 35 % | 5.848 | -30 % |
EBIT margin[2] | 7.7 % | 4.9 % | - | 8.1 % | - |
EBITA[2] | 4.893 | 3.848 | 27 % | 6.694 | -27 % |
EBITA margin[2] | 9.2 % | 6.2 % | - | 9.3 % | - |
Net income | 2.613 | 1.575 | 66 % | 3.409 | -23 % |
EPS diluted, SEK | 0.77 | 0.45 | 71 % | 1.02 | -25 % |
Measures excl. restructuring charges[2] | |||||
Gross margin excluding restructuring charges | 42.7 % | 39.8 % | - | 41.1 % | - |
EBIT excluding restructuring charges | 4.305 | 4.026 | 7 % | 7.368 | -42 % |
EBIT margin excluding restructuring charges | 8.1 % | 6.4 % | - | 10.3 % | - |
EBITA excluding restructuring charges | 5.098 | 4.828 | 6 % | 8.214 | -38 % |
EBITA margin excluding restructuring charges | 9.6 % | 7.7 % | - | 11.4 % | - |
Free cash flow before M&A | 3.671 | -8.016 | - | 12.464 | -71 % |
Net cash, end of period | 10.805 | 13.573 | -20 % | 7.832 | 38 % |
[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 -
Networks sales[1] decreased organically by -
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
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
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
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
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
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
[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
The webcast will be available on-demand after the event and can be viewed at www.ericsson.com/investors.
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.
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SOURCE Ericsson
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