Ericsson braces for 'choppy' year despite meeting Q1 expectations

Waning 5G deployments in response to economic uncertainty blamed

Ericsson has reported calendar Q1 financial results largely in line with earlier forecasts, but repeated warnings of a rough ride ahead for the rest of 2023 as spending on 5G deployments slackens off in some regions.

The Swedish networking and telecoms biz actually reported a 13.6 percent year-on-year increase in net sales to 62.6 billion Swedish krona ($6 billion).

However, net income for the company fell to 1.6 billion krona ($155 million), down 46 percent from the same period in 2022, and Ericsson said its gross margin for the quarter fell to 38.6 percent, down from 42.3 percent a year ago.

In a statement, CEO Börje Ekholm blamed an expected decline in sales for its Networks business on a slowdown in the 5G deployment pace by operators in many early markets, itself likely a response to the uncertain economic conditions.

However, he claimed that this had been offset by growth in other segments, including a 19 percent spike in the Enterprise Wireless Solutions division.

South East Asia, Oceania and India bucked the trend with an increase seen in sales for Networks, while it declined in other areas of the globe. Networks still account for 68 percent of Ericsson's total sales.

Ekholm said Ericsson isn't done with cost-cutting measures, and that the company has identified additional savings opportunities of 2 billion krona. It confirmed two rounds of job cuts in February, impacting staff in Sweden and then internationally, now its plans to reduce cost run rate by 11 billion Krona by the end of the year.

Ericsson warned that restructuring charges may amount to around 7 billion krona ($680 million) for the full year 2023, of which more than half is likely to be booked in this current quarter.

Ericsson is also expecting the rest of 2023 to be "a choppy environment," with Ekholm saying that he expects telcos to remain cautious with investments and continue to adjust their inventory levels, meaning that many are still using up stockpiled components and kit.

This somewhat reiterates what the company predicted during its previous Q4 2022 earnings results at the start of the year.

But the CEO is also crossing his fingers for a gradual recovery to commence when inventory adjustments are largely expected to be complete in the latter part of this year.

"Previous experience tells us that when operators are seeing underlying traffic growth, this leads to investments in networks in order to avoid deteriorating quality," he said.

Ekholm claimed that overall the company's strategy is paying off and was readying itself for an anticipated recovery of the mobile networks market sector by 2024.

"We are driving our transformation to a platform company with a focus on creating a stronger and more profitable Ericsson with a larger addressable market," he said. ®