Ericsson Exceeds Forecasts As 5G Lifts Off

Ericsson has exceeded its fourth-quarter core earnings forecasts on Friday, helped by strong sales of 5G equipment and the ban on Chinese rival Huawei in several countries.

Apart from the Swedish company’s shares jumping 7% in early trading, it is also earning more from each sale, with gross margins rising to 40.6% in the quarter from 36.8% a year earlier. Margins are now at levels of a decade ago, having recovered from the low-20%s in 2017.

In particular, the core Networks business saw margins at 43.5% from 41.1% a year earlier, on a 20% rise in sales.

“The competition in our industry is always cut-throat and the trick is to be ahead of the cost curve,” Chief Financial Officer Carl Mellander told Reuters. “A lot of the money we invest in R&D not only goes into making better functionality and features, but also to reduce the cost structure.”

The company said its operating margin of 12.5% in 2020 reached the 2022 group target range of 12-14% two years early.

“The 2022 goals are simply too low,” said Christer Gardell, co-founder of Ericsson shareholder Cevian Capital. “Ericsson has much more to give.”

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The company’s quarterly adjusted operating earnings rose to 11 billion Swedish crowns ($1.3 billion) from 6.5 billion crowns a year earlier, beating analysts’ mean forecast of 8.58 billion crowns, according to Refinitiv estimates.

Total revenue rose 5% to 69.6 billion crowns, beating estimates of 68.35 billion crowns.

“This reflects continued high activity levels in North America and North-East Asia, and also in Europe where we further increased the market share,” Chief Executive Börje Ekholm said.

North East Asia includes China, where Ericsson, unlike Nordic rival Nokia, got 5G radio equipment contracts from China’s three largest telecom operators.

Ericsson has warned Sweden’s move to exclude Chinese vendors from its 5G networks may create problems for it in China. But Mellander said it hadn’t seen a material impact so far.

Ericsson has criticised the Swedish ban, and there have even been reports it has threatened to leave Sweden over the matter.

Mellander denied there was any talk of this. “We will remain a Swedish domiciled company,” he told Reuters.