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Ericsson (ERIC) released its second quarter results on Wednesday. The company reported revenues of 54.8 billion SEK in the second quarter. Ericsson's second quarter revenues increased 10% year-over-year and 12% sequentially. The company reported adjusted operating profit of 3.9 billion crowns, nearly double its operating profit in the second quarter of 2018. This figure is below badysts' expectations. Prior to the second quarter, Ericsson posted better than expected results for five consecutive quarters. The shares saw price increases after the publication of the five previous results. However, Ericsson shares fell 11% Wednesday, ending the series.
Ericsson Outlook
Borje Ekholm, CEO of Ericsson, said in a statement: "We are seeing strong momentum in our 5G business, with new contracts, new commercial launches and live networks. To date, we have provided solutions to nearly two-thirds of all 5G networks launched on the market. However, according to Market Realist badyst Ruchi Gupta, Ericsson may need to catch up with its peers in the 5G sector. Ericsson organic sales increased 7% in the second quarter. The company also highlighted the pressures on short-term margins generated by strategic contracts and network deployments in Asia. If Ericsson maintained its targets for 2020 and 2022, badysts expected the company to increase its targets.
Call for second quarter results
Ericsson recorded free cash flow of 2.2 billion crowns in the second quarter. Ericsson generally records negative free cash flow in the second quarter. During the second quarter earnings call, Ekholm described the positive second quarter cash flows as "milestones". Ekholm did not stress the split between 5G and 4G deployments in North America. However, he said, "I will say that we are witnessing a strong expansion of production capacity in North America, which is clearly the most important part. But of course, we also see the deployment of 5G, and that's why there is significant growth. "
Referring to Ericsson's competitive positioning in China, Ekholm said the company was aiming for a bigger market share in 5G than it had in 4G. The trade war between the United States and China also broke out during the Ericsson results conference in the second quarter. Ekholm said that "it is very difficult to speculate on trade tensions. However, he said: "But we are planning larger deployments in 2020" in China. 5G has been a sensitive issue in the US-China trade relationship. Read Trump, Huawei and 5G: the saga does not die to learn more.
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