Ericsson pins hopes on cloudy future after Q3 lightens wallets

Watch out, 'macroeconomic uncertainty' is at it again as network operators slow deployments

Sweden's Ericsson has posted a loss for its third quarter of 2023, blaming "macroeconomic uncertainty" in the market and claimed the situation is so volatile that it can't give guidance beyond the end of this year.

The networking and telecoms giant declared a loss of 30.5 billion krona ($2.78 billion) for Q3 2023, compared with income of 5.4 billion krona ($494 million) for the same period last year.

Despite this, the company said its results were broadly in line with guidance, and that it expects the economic uncertainty – which it blamed for impacting the investment plans of its network operator customers – to persist into 2024.

In line with this, Ericsson saw its sales decline by 10 percent overall to 65 billion krona ($5.96 billion), broken down into a fall of 16 percent seen by its Networks business, which was partly offset by 5 percent growth in Cloud Software and Services. The company also said it saw an 11 percent rise in sales for its Enterprise Wireless Solutions business.

In particular, the company said Networks sales in North America were down 60 percent compared with Q3 2022 – which it described as "a record quarter" – due to customer inventory adjustments and slowing deployments.

Ericsson also announced last week that it was writing off 32 billion krona ($2.93 billion) in an impairment charge following its acquisition of US-based cloud communications provider Vonage last year for $6.2 billion.

Investors had questioned the wisdom of this buy at the time, according to the FT, which described Vonage as "a middling player in its industry, a leader in neither technology nor market share."

Despite this, Ericsson president and CEO Börje Ekholm said that "Vonage is key to our expansion in enterprise" and would enable the next wave of innovation in the industry.

He claimed that Ericsson will be able to unlock a market opportunity estimated at $20 billion in 2028 by offering communication and network APIs that will open up new ways for operators to monetize investments in mobile networks and for developers to use network capabilities to create new kinds of applications.

Thus, Ericsson is looking to the long term for positive developments. Commenting on the Q3 results, Ekholm said the mobile networks market has been "flattish" for two decades, but predicted that high-paced mobile data growth spurred by new use cases will be a driver for the market to recover to a more normal level.

"We are also relatively early in the 5G cycle with 75 percent of all radio base station sites outside China not yet updated with 5G mid-band," he claimed.

Ericsson's long-term margin target of 15-18 percent remains, according to Ekholm, but he said that "given current uncertainty we will not give guidance beyond Q4 2023, as timing for the market mix recovery is in our customers' hands."

Shares in Ericsson were down as much as 9 percent following the decision by the company to withdraw its margin guidance for next year.

Ericsson recently signed a long-term patent cross-licensing agreement with China's Huawei, and has also filed a lawsuit in the US against Lenovo accusing it of infringing on its 5G patents in some of its products. ®

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