Ericsson surpasses third-quarter forecast as 5G savings and sales come into play

STOCKHOLM (Reuters) – Ericsson, maker of mobile telecom equipment, exceeded Thursday its third-quarter operating profit forecast, boosted by next-generation 5G equipment sales in North America. North, and announced a clear increase in its long-term financial goals.

Making its third consecutive quarter of substantial progress in achieving its financial goals for 2020, the company announced a net business increase of 9% to 53.8 billion Swedish kroner (6 billion USD), thanks to the strong growth of its network activities.

Early sales of 5G in North America and 4G upgrades in Europe and Latin America contributed to its success. They allowed his shares to move up 5% earlier on Thursday.

However, Carl Mellander, chief financial officer, told Reuters that, thanks to this strong performance, fourth-quarter sales growth would be "a few percentage points lower" than the 17% -18% growth compared to the third quarter – adding that North American network sales would be roughly flat-quart.

Ericsson has committed to a gross margin of 37 to 39% by 2020. Nearly reaching its target in the third quarter, reaching 36.9%, excluding restructuring costs, exceeding analysts' forecasts 36.2%.

The quarterly operating margin reached 6.0%, up from 7.4% a year earlier. Managing Director Borje Ekholm said confidently that Ericsson could generate an operating margin of at least 12% beyond 2020.

"The global 5G market is experiencing strong momentum, as major markets are progressing," Managing Director Borje Ekholm said in a statement. "However, much remains to be done to ensure that all parts of the company reach a satisfactory level of performance.

More to do

Ericsson has been responding to a slowdown in the industry and heavy losses since 4G sales peaked in the middle of the decade with a strategy focused on profitability rather than growth, replacing most of management and achieving radical cost reductions.

Last quarter's operating profit reached 3.2 billion kronor ($ 356.5 million), compared to 3.7 billion in the same period last year, exceeding the average forecast of a profit of 800 million kroner in a survey conducted by Reuters with analysts.

Ericsson shares rose nearly 50% this year, driven by the progress made in achieving its financial goals after three years of sharp declines in revenues.

Ericsson is now at the dawn of a new potential cycle of network upgrades, as the 5G equipment demand begins to appear in the United States and should be followed by upgrades on North Asian markets in early 2019.

Net sales in North America, Ericsson's largest regional market, increased 10%, while Europe grew 4%, offsetting the weak Middle East and US markets. from North Asia.

However, the company said that it continues to invest heavily in research and development of 5G, to closely manage underperforming service activities while maintaining strict cost control after the implementation. in place of a restructuring plan resulting in 5 to 7 billion crowns of restructuring this year.

As a result, many investors want to see more evidence of progress before betting on a sustained 5G recovery. Out of 10 analysts polled by Reuters, the stock is considered "neutral" in terms of stock price appreciation.

Formerly the world's leading provider of mobile communications equipment, Ericsson is facing declining spending by telecom operators, weak emerging markets and strong competition from its larger rivals, Huawei. [HWT.UL] from China and Nokia from Finland.