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Ericsson's earnings slip as telcos rein in 5G spending

Oh, snap... next gen networks suddenly not a must-have in this economic climate

Sweden's Ericsson missed earnings estimates for the last quarter after telco customers reined in spending on 5G network expansion amid uncertainty about the future direction of the economy.

For calendar Q4, the telecoms and network giant reported profit before tax of 8.1 billion Swedish Krona ($785 million), down 34 percent against the same period last year, and below some analyst expectations that the company would bring in 10.7 billion Krona (just over $1 billion).

However, Ericsson president and CEO Börje Ekholm claimed the company is still on track to deliver on its long-term earnings target of 15-18 percent by 2024, and that it was making "good progress against a backdrop of broad macroeconomic headwinds."

"We remain positive on the long-term outlook for our business. However, the near-term outlook, as we also described at our Capital Markets Day, remains uncertain," Ekholm said.

For that near-term outlook, Ericsson expects to see network operators "continue to sweat assets" in response to macroeconomic headwinds, and also to adjust inventory levels as the supply situation eases.

In other words, the company believes customers are holding back on spending and working through any stockpile inventory they may have accumulated in response to recent supply chain issues.

These trends started to impact Ericsson's Networks business in Q4 and the company said it expects them to continue for at least the first half of 2023.

According to Ericsson, its networks business in India showed growth with significant market share gains, but the gains here could not fully compensate for reduced operator capital expenditure and inventory reductions in other markets such as North America.

"However, we are still in the early phase of global 5G rollout and widespread enterprise digitalization," Ekholm said.

For its Enterprise business, sales grew by 15 percent as the company continued to build on its strength in mobile networks.

Ekholm said that Ericsson's enterprise strategy has two pillars, with the first being the Enterprise Wireless Solutions business, which is focused on what it sees as a multi-billion-dollar market opportunity for 5G optimized networking and security solutions.

The second is to enable new ways of monetizing 5G by transforming how network features such as speed and latency are globally exposed, consumed and paid for, he added.

"From 2024 and beyond our enterprise business will be a major driver of Ericsson's long-term growth and profitability. However, these investments will weigh on profitability during 2023," he said.

Ekholm also highlighted Ericsson signing a multi-year Intellectual Property Rights (IPR) patent license agreement "with a major licensee" during the previous quarter, possibly a reference to an agreement with Apple in December that ended a row over royalty payments for 5G wireless patents involving iPhones.

"This positive outcome positions us well to capture further 5G patent license agreements among handset manufacturers and in new areas such as consumer electronics and IoT. We expect significant IPR revenue growth over the coming 18-24 months," he said.

Ericsson said that for this quarter it has booked a 2.3 billion Krona (approx $220 million) provision in regards to potential financial penalties the company may face from US authorities relating to payments the company made to ISIS in Iraq during the period 2011-2019.

In December, the company announced it was offloading its remaining operations in Russia, selling the business to local managers, following the country's ongoing assault against Ukraine. ®

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