Ericsson reports second quarter results 2021

Rhea-AI Summary

Ericsson reported a 8% organic sales growth for Q2 2021 despite a SEK -2.5 b sales decline in Mainland China, with total reported sales of SEK 54.9 b. Gross margin improved to 43.4%, and EBIT excluding restructuring charges rose to SEK 5.8 b. The company gained market share in Networks, showing an 11% organic sales increase. However, Digital Services faced challenges, with a net income of SEK 3.9 b and cash flow before M&A of SEK 4.1 b. The outlook for the RAN market is optimistic, projecting 10% growth YoY.

Positive

• 8% organic sales growth in Q2 2021.
• Gross margin improved to 43.4%.
• EBIT excluding restructuring charges increased to SEK 5.8 b.
• 11% organic sales growth in Networks.

Negative

• Sales decline of SEK -2.5 b in Mainland China impacted overall performance.
• Low EBIT margin target due to projected market share loss in China.

STOCKHOLM, July 16, 2021 /PRNewswire/ --

Second quarter highlights

• Group organic sales grew by 8% YoY, despite a sales decline in Mainland China of SEK -2.5 b. YoY and an IPR revenue decline of SEK -0.5 b. YoY. Reported sales were SEK 54.9 (55.6) b. 

• Gross margin excl. restructuring charges improved to 43.4% (38.2%) driven mainly by operational leverage in Networks. Q2 2020 was negatively impacted by inventory write-down and initial 5G deployments in Mainland China. Reported gross margin was 43.4% (37.6%).

• EBIT excluding restructuring charges improved to SEK 5.8 b. (10.6%) from SEK 4.5 b. (8.2%) YoY driven by Networks. Reported EBIT was SEK 5.8 (3.9) b.

• Organic sales in Networks grew by 11% YoY, driven by market share gains. Sales in Mainland China were SEK -2.0 b. lower YoY. Reported EBIT margin was 21.7% (13.2%).

• Organic sales in Digital Services were stable YoY, despite a sales decline in Mainland China of SEK -0.5 b. YoY. Reported EBIT (loss) was SEK -1.6 (-0.7) b., impacted by a write-down of SEK -0.3 b. for pre-commercial product investments for the Chinese market.

• Reported net income was SEK 3.9 (2.6) b. 

• Free cash flow before M&A was SEK 4.1 (3.2) b. supported by higher incoming IPR payments. Net cash per June 30, 2021 was SEK 43.7 (37.5) b.

• The RAN market outlook for 2021 has been updated to 10% growth YoY, compared with previously 3% growth. Source: Dell'Oro.

SEK b.	Q2 2021	Q2 2020	YoY change	Q1 2021	QoQ change	Jan-Jun 2021	Jan-Jun 2020	YoY change
Net sales	54.9	55.6	-1%	49.8	10%	104.7	105.3	-1%
Sales growth adj. for comparable units and currency[1]	-	-	8%	-	-	-	-	9%
Gross margin[1]	43.4%	37.6%	-	42.8%	-	43.1%	38.6%	-
EBIT	5.8	3.9	51%	5.3	11%	11.1	8.2	36%
EBIT margin[1]	10.6%	6.9%	-	10.6%	-	10.6%	7.7%	-
Net income	3.9	2.6	51%	3.2	23%	7.1	4.9	45%
EPS diluted, SEK	1.10	0.74	49%	0.96	15%	2.06	1.39	48%
Measures excl. restructuring charges[1]
Gross margin excluding restructuring charges	43.4%	38.2%	-	42.9%	-	43.2%	39.3%	-
EBIT excluding restructuring charges	5.8	4.5	29%	5.3	9%	11.2	9.1	22%
EBIT margin excluding restructuring charges	10.6%	8.2%	-	10.7%	-	10.7%	8.7%	-
Free cash flow before M&A	4.1	3.2	26%	1.6	161%	5.6	5.6	1%
Net cash, end of period	43.7	37.5	16%	43.0	2%	43.7	37.5	16%
[1] 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)

Our strong business performance continued, with an organic sales[1] growth of 8% in the quarter. This was despite a sales decline of SEK -2.5 b. YoY in Mainland China. Networks continued to grow market shares in the quarter with some significant wins. Group gross margin[2] increased to 43.4% (38.2%). We are well positioned to take advantage of continued market momentum with our competitive 5G product portfolio and cost structure. However, it is prudent to forecast a materially lower market share in Mainland China for Networks and Digital Services as the earlier decision to exclude Chinese vendors from the Swedish 5G networks might influence market share awards.

Networks sales[1] grew organically by 11%, despite lower volumes from delayed 5G deployment in Mainland China. This growth reflects the continued high activity levels in most markets. The North East Asia market outside Mainland China saw strong growth in 5G volumes. Gross margin[2] improved to 47.9% (40.5%). Through proactive and continuous measures for supply chain resilience we have accelerated production to meet customer demand, and we are well prepared for any challenges in the future. Our increased R&D investments have accelerated product development. We strengthened our Cloud RAN portfolio further with 5G mid-band and massive MIMO support for increased network performance. Cloud RAN will enable service providers to seamlessly evolve their networks towards cloud-native technologies and open network architectures, meeting demand for more deployment flexibility. We continue on the successful path of 5G wins in North America. We have signed another 5-year contract, this one amounting to USD 8.3 b. (SEK 71 b.), with a leading customer. This is the single largest deal in the history of Ericsson.

In Digital Services the strong momentum in 5G Core continued and we are ramping up R&D investments in the cloud native 5G portfolio. Organic sales were stable in the quarter. However, excluding the reduced sales in Mainland China, sales[1] grew by 5%. Gross margin[2] decreased to 37.9% (43.6%) YoY, mainly due to a write-down of SEK -0.3 b. related to pre-commercial product investments for the Chinese market. A material loss of market share in Mainland China, which contributed 5.4% of Digital Services sales in 2020, would cause a delay in reaching the EBIT margin target for 2022. A significantly reduced volume would lead to a limited loss in 2022 in Digital Services. Improvements are skewed towards the year end 2022, as we expect to see a gradual increase in Core revenues. Based on our strong portfolio, we expect to exceed our original EBIT margin target of 4-7%, as sales in other markets over time will compensate for the reduction in Mainland China. We see strong demand for our OSS, BSS and 5G core offerings, positioning us well for longer-term profitability.

The new IPR agreement with Samsung reaffirms the significant value of our patent portfolio and with this agreement in place we are well positioned to conclude pending and future patent license renewals. One additional agreement was signed in July. There is currently high activity in renewal negotiations. As new contracts are concluded, revenues will include retroactive payments for the unlicensed period prior to signing.

Whilst many markets are returning to normal following the COVID-19 pandemic, we continue to see rising numbers of cases in South East Asia, which may result in a slower recovery  for impacted countries.

We continue to invest in compliance to fully embed our commitments to ethical business practice, in all areas across the organization. Ensuring all decisions are taken with integrity is a driving force in our culture-change journey.

The opportunity from enterprise for 5G provides an exciting growth path for Ericsson. Building on the strong foundations of our core business we will continue to take a stepwise approach to investing in growth in Dedicated Networks, IoT and the wireless portfolio acquired with Cradlepoint. We foresee 20-30% annual market growth in enterprise, with opportunities in automation, remote operations and safety management across whole industry sectors such as smart manufacturing, ports and airports, energy, mining, health and agriculture. Enterprise use cases in 5G – and the continuing growth in 4G – will drive the digital transformation of business globally combining the high performance, low latency and security benefits of wireless over traditional fixed networks. We are confident that wireless will be the first-choice connection for global business in the 5G era.

Stay healthy and well.

Börje Ekholm

President and CEO

[1] Sales adjusted for comparable units and currency

[2] Excluding restructuring charges

NOTES TO EDITORS

You find the complete report with tables in the attached PDF or by following this link https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2021/6month21-en.pdf or on www.ericsson.com/investors

Video webcast for analysts, investors and journalists

President and CEO Börje Ekholm and CFO Carl Mellander will comment on the report and take questions at a video webcast at 9:00 AM CEST (8:00 AM BST London, 3:00 AM EDT New York).

To join the webcast, please go to www.ericsson.com/investors

To ask a question, please call:

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Please call in at least 15 minutes before the webcast starts.

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

Peter Nyquist, Head of Investor Relations
Phone: +46 705 75 29 06
E-mail: peter.nyquist@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

Stefan Jelvin, Director, Investor Relations
Phone: +46 709 86 02 27
E-mail: stefan.jelvin@ericsson.com

Media

Kristoffer Edshage, Director Corporate Media
Phone: +46 722 20 44 46
E-mail: media.relations@ericsson.com

Corporate Media
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 and the Swedish Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 07:00 CEST on July 16, 2021.

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Ericsson second quarter report 2021

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SOURCE Ericsson

FAQ

What were Ericsson's Q2 2021 organic sales growth figures?

Ericsson reported an organic sales growth of 8% in Q2 2021.

How much did Ericsson's gross margin improve in Q2 2021?

The gross margin improved to 43.4% in Q2 2021.

What were the reported earnings before interest and taxes (EBIT) for Ericsson in Q2 2021?

EBIT excluding restructuring charges rose to SEK 5.8 billion in Q2 2021.

How did sales in Mainland China affect Ericsson's performance in Q2 2021?

Sales in Mainland China declined by SEK -2.5 billion YoY, impacting overall performance.

What is the RAN market outlook for Ericsson in 2021?

The RAN market outlook for 2021 has been updated to 10% growth YoY.