Ericsson reports second quarter results 2024

Rhea-AI Summary

Ericsson reported its Q2 2024 results, highlighting its strategic progress and financial performance. The company maintained its position as a 5G leader, signed a new 5G patent licensing agreement, and progressed in building out its Global Network Platform for network APIs.

However, sales dropped 7% YoY to SEK 59.8 billion, despite a 14% growth in North America. Adjusted gross margin improved to 43.9% from 38.3%, driven by higher IPR licensing revenue and cost actions. Adjusted EBITA increased to SEK 4.1 billion with a 6.8% margin, but the overall EBITA was SEK 2.4 billion due to increased R&D investments.

Net income suffered a loss of SEK 11.0 billion, impacted by a SEK 11.4 billion impairment charge. Free cash flow before M&A improved to SEK 7.6 billion from -5.0 billion. CEO Börje Ekholm noted that while the market remains challenging, the company focuses on optimizing its business and expects benefits from North American contract deliveries in H2 2024.

Positive

• 5G leader recognition for the 4th consecutive year.
• 14% sales growth in North America.
• Adjusted gross margin increased to 43.9% from 38.3%.
• Adjusted EBITA rose to SEK 4.1 billion with a 6.8% margin.
• Free cash flow before M&A improved to SEK 7.6 billion from -5.0 billion.

Negative

• Sales declined by 7% YoY to SEK 59.8 billion.
• Net income loss of SEK 11.0 billion due to SEK 11.4 billion impairment charge.
• Reported EBITA was SEK 2.4 billion, affected by increased R&D investments.
• EPS diluted at SEK -3.34 compared to SEK -0.21 in the previous year.

Insights

Financial Analyst

Ericsson's Q2 results for 2024 present a mixed bag with several key takeaways for investors. The company's net sales declined by 7% year-over-year (59.8 billion SEK in Q2 2024 compared to 64.4 billion SEK in Q2 2023). However, the North American market experienced notable growth of 14%. The primary concern here is the overall sales decline, which points to broader market challenges.

On the positive side, the company's gross margin improved significantly, reaching 43.1% (up from 37.4% a year earlier). This indicates that Ericsson is successfully managing its cost structure, despite higher targeted R&D investments. The adjusted EBITA margin also improved to 6.8% from 5.7%, driven by increased gross income.

However, the reported net income paints a troubling picture with a substantial net loss of -11.0 billion SEK, primarily due to a significant impairment charge of -11.4 billion SEK. This hits the bottom line hard and raises questions about the sustainability of current business investments.

From a cash flow perspective, Ericsson's free cash flow before M&A was strong at 7.6 billion SEK, showing a vastly improved working capital position. Investors should weigh these factors carefully: improved operational efficiency and cost control against significant impairment and market challenges.

Tech Expert

Ericsson's strategic focus on 5G technology and network leadership is evident from the latest results. Being recognized as a 5G leader for the fourth consecutive year reinforces its competitive edge in this critical sector. The progress in building out the Global Network Platform for network APIs suggests a long-term growth strategy aligned with the digitalization trend in enterprises and society.

The new 5G patent licensing agreement is a notable achievement and sets the company on track to meet its IPR revenue target of 12-13 billion SEK for 2024. This is a positive signal indicating successful monetization of its intellectual property.

However, the sector faces challenges, as indicated by the slowing pace of investments, particularly in India. The company's focus on maintaining its technological lead through higher R&D investments is critical but should be balanced against market realities to avoid future impairments like the one seen this quarter.

STOCKHOLM, July 12, 2024 /PRNewswire/ --

Strategic highlights – taking proactive action in a challenging market environment 

• Delivering on network technology leadership strategy; externally recognized as 5G leader for 4th consecutive year.  
• Further progress to build out Global Network Platform for network APIs; two additional partnerships in Q2.  
• New 5G patent licensing agreement signed; on track to deliver the SEK 12-13 b. IPR revenue target for 2024. 

Financial highlights – strong gross margin expansion, partly offset by targeted R&D investments   

• Sales declined -7%* YoY, but market area North America grew by 14%*. Reported sales were SEK 59.8 (64.4) b.  
• Adjusted^[1] gross income increased to SEK 26.3 (24.7) b. driven by strong gross margin expansion. Reported gross income was SEK 25.8 (24.1) b.  
• Adjusted^[1] gross margin was 43.9% (38.3%) supported by higher IPR licensing revenue and cost actions. Networks adjusted gross margin was 46.1% (39.3%). Reported gross margin was 43.1% (37.4%).  
• Adjusted^[1] EBITA was SEK 4.1 (3.7) b. with a 6.8% (5.7%) margin, with higher gross income partly offset by increased R&D investments in Networks for technology leadership. EBITA was SEK 2.4 (0.5) b.   
• Net income (loss) was SEK -11.0 (-0.6) b., including a SEK -11.4 b. impairment impact. EPS diluted was SEK -3.34 (-0.21).  
• Free cash flow before M&A was SEK 7.6 (-5.0) b. benefiting from a strong improvement in working capital. 

Börje Ekholm, President and CEO, said: "In Q2, we maintained our leading market position, returned to growth in North America, and delivered strong gross margin expansion and free cash flow. We remained focused on matters in our control, to optimize our business amid a challenging market environment, with industry investment levels unsustainably low.  

Vonage remains foundational to build out a global platform for network APIs. This is critical for the digitalization of enterprises and society, and will drive future growth in the telecoms industry. We recorded an impairment charge in Q2, as market growth in the current business has slowed, and we must now refocus on improving performance.  

Our results highlight our competitiveness, and we will continue to take proactive steps to position the business for longer-term success. We expect market conditions to remain challenging this year, as the pace of India investments slow, however our sales will benefit during the second half from contract deliveries in North America." 

SEK b.	Q2 2024	Q2 2023	YoY change	Q1 2024	QoQ change	Jan-Jun 2024	Jan-Jun 2023	YoY change
Net sales	59.848	64.444	-7 %	53.325	12 %	113.173	126.997	-11 %
Organic sales growth[2]	-	-	-7 %	-	-	-	-	-10 %
Gross margin[2]	43.1 %	37.4 %	-	42.5 %	-	42.8 %	38.0 %	-
EBIT (loss)	-13.519	-0.312	-	4.100	-	-9.419	2.734	-
EBIT margin[2]	-22.6 %	-0.5 %	-	7.7 %	-	-8.3 %	2.2 %	-
EBITA[2]	2.426	0.542	348 %	4.893	-50 %	7.319	4.390	67 %
EBITA margin[2]	4.1 %	0.8 %	-	9.2 %	-	6.5 %	3.5 %	-
Net income (loss)	-10.999	-0.597	-	2.613	-	-8.386	0.978	-
EPS diluted, SEK	-3.34	-0.21	-	0.77	-	-2.57	0.25	-
Free cash flow before M&A	7.595	-4.992	-	3.671	107 %	11.266	-13.008	-
Net cash, end of period	13.133	1.892	-	10.807	22 %	13.133	1.892	-
Adjusted financial measures[2]
Adjusted gross margin	43.9 %	38.3 %	-	42.7 %	-	43.4 %	39.0 %	-
Adjusted EBIT (loss)	-11.891	2.821	-	4.305	-	-7.586	6.847	-
Adjusted EBIT margin	-19.9 %	4.4 %	-	8.1 %	-	-6.7 %	5.4 %	-
Adjusted EBIT excluding impairments[3]	3.229	2.821	14 %	4.305	-25 %	7.534	6.847	10 %
Adjusted EBIT margin excluding impairments[3]	5.4 %	4.4 %	-	8.1 %	-	6.7 %	5.4 %	-
Adjusted EBITA	4.054	3.675	10 %	5.10	-20 %	9.152	8.503	8 %
Adjusted EBITA margin	6.8 %	5.7 %	-	9.6 %	-	8.1 %	6.7 %	-
*Sales adjusted for the impact of acquisitions and divestments and effects of foreign currency fluctuations.  [1] Adjusted metrics are adjusted to exclude restructuring charges. This is a change in nomenclature only, compared with previous reports. [2] Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statement. [3] Excluding the non-cash impairment recorded in the second quarter 2024, relating to the impairment of intangible assets mainly attributed to the Vonage acquisition.

 

NOTES TO EDITORS 

You find the complete report with tables in the attached PDF or on https://www.ericsson.com/en/investors/financial-reports/interim-reports

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 10:00 AM CEST (9:00 AM BST London, 4:00 AM EDT 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 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 12, 2024. 

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SOURCE Ericsson

FAQ

What were Ericsson's Q2 2024 financial results?

Ericsson reported a sales decline of 7% YoY to SEK 59.8 billion, with an adjusted gross margin of 43.9% and a net income loss of SEK 11.0 billion due to a SEK 11.4 billion impairment charge.

How did Ericsson's North American market perform in Q2 2024?

Ericsson's sales in North America grew by 14% in Q2 2024.

What was Ericsson's adjusted EBITA in Q2 2024?

Ericsson's adjusted EBITA increased to SEK 4.1 billion with a 6.8% margin in Q2 2024.

What impact did the impairment charge have on Ericsson's Q2 2024 results?

The impairment charge of SEK 11.4 billion led to a net income loss of SEK 11.0 billion and impacted the overall EBITA, which was SEK 2.4 billion.

What is Ericsson's outlook for the second half of 2024?

Ericsson expects its sales to benefit during H2 2024 from contract deliveries in North America, despite challenging market conditions.