Ericsson Cautions on Choppy Year With Poor Visibility — Update

By Dominic Chopping

STOCKHOLM--Ericsson AB on Tuesday posted a smaller-than-expected drop in first-quarter net profit but cautioned that the operating environment will remain choppy in 2023 with poor visibility as operators remain cautious with spending plans and continue to adjust inventories.

The Swedish telecommunications-equipment company said that customers in early 5G markets have slowed their deployment pace somewhat, while some customers have also lowered elevated inventory levels built up in a tight supply environment. It expects this inventory adjustment to be mostly completed during the second quarter but might spill into the third quarter.

Overall sales in its key network unit fell 4% on the year in the first quarter, but strong sales mainly in India helped offset a 30% sales drop in North America. Network sales in 2Q are expected to be in line with 1Q, it said.

The networks gross margin excluding restructuring fell to 40.6% in the quarter from 44.8% a year ago. Large roll-out projects weighed on margins and will remain dilutive in the short term, with the second quarter margin expected to be between 37% and 39%, it added.

"Uncertainty regarding 2023 remains, with lower investment activities in several markets and some customers guiding for lower capex in light of macroeconomic headwinds," the company said.

Net profit attributable to shareholders fell to 1.52 billion Swedish kronor ($146.9 million) in the quarter compared with SEK2.94 billion a year earlier, as sales rose 14% to SEK62.55 billion.

Analysts polled by FactSet had expected net profit of SEK1.44 billion on sales of SEK60.95 billion.

The earnings before interest, tax and amortisation margin excluding restructuring fell to 4.8% from 5.0% and Ericsson said it expects the margin to reach mid-single-digit level in the second quarter.

"We expect a gradual recovery in the second half of 2023, primarily as we expect the inventory adjustments to be completed and our cost reduction activities to start flowing through the P&L," Chief Executive Borje Ekholm said.

"With the expected recovery by 2024 of the mobile networks market, the turnaround of cloud software and services, portfolio adjustments, enhanced R&D productivity, increased intellectual property revenues and cost reductions, we are on track to reaching the lower end of the long-term EBITA target range of 15%-18% by 2024."

Ericsson said it has found an extra SEK2 billion in cost-saving opportunities, lifting its cost-saving target to SEK11 billion, while restructuring charges could hit around SEK7 billion this year of which more than half is likely to be booked in the second quarter.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

April 18, 2023 02:47 ET (06:47 GMT)

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