Ericsson plans continued 5G R&D as net loss reduces to 700m SEK

Ericsson has reported a net loss of 700 million Swedish Kronor on net sales of 43.3 billion SEK for Q1 2018, saying its 5G, cloud, automation, and machine intelligence R&D investments will continue.
Written by Corinne Reichert, Contributor

Ericsson has reported its first-quarter results for 2018, recording a net loss of 700 million Swedish Kronor (SEK), an 18.5 percent improvement on last year's 10 billion SEK net loss, on net sales of 43.4 billion SEK, down 9 percent year on year from 47.8 billion.

Ericsson CEO Börje Ekholm said the payoff is starting to come through as a result of the company's "focused business strategy", as well as its investments in 5G and cloud research and development (R&D) initiatives.

"A cornerstone in our strategy is to invest in R&D for both technology leadership and cost leadership, which will allow us to generate higher gross margins," the chief executive said.

"We continue to increase our R&D investments in Networks to lead in 5G. In Digital Services, we continue to increase investments into our new cloud-native portfolio as well as changing our ways of working for better R&D efficiency. In Managed Services, we continue to focus on machine intelligence, automation, and analytics to further enhance user experience, improve efficiency, and better manage the increasingly complex networks of tomorrow."

Ericsson spent 9.1 billion SEK on R&D expenses during the quarter -- after raising $370 million in December to support its 5G, mobile, and Internet of Things (IoT) R&D activities -- although overall operating expenses were down by 18.9 percent to 15.3 billion SEK due to needing to write down assets last financial year.

The Swedish networking giant brought in 28.6 billion SEK from its Networks segment; 7.7 billion SEK from Digital Services; 5.5 billion SEK from Managed Services; and 1.6 billion SEK from Emerging Business and Other, which includes its Media Solutions and Red Bee Media businesses.

Ericsson's biggest market area remains Europe and Latin America, where it made 13.1 billion SEK in sales during the quarter, up 7 percent year on year, which it said was driven by higher Networks sales in Latin America, partially offset by lower Digital Services sales.

In North America, it made 11.3 billion SEK, down 6 percent due to declining Digital Services and Managed Services sales, although it said it saw growth in its Networks business "due to investments in network expansions and in 5G readiness".

Ericsson made 6.4 billion SEK in South East Asia, Oceania, and India, down 24 percent due to major Networks projects completing; while it made 3.4 billion SEK in North East Asia, down 39 percent due to reduced LTE investments in mainland China, with carriers in Japan and China additionally awaiting spectrum allocations before proceeding with new network builds.

Lastly, it made 5.8 billion SEK in the Middle East and Africa, growing by 8 percent year on year thanks to LTE contracts and "network modernisation" projects in the Middle East.

Ericsson also used the financial results report to provide an update on its legal stoushes, with the company having sued LG Electronics last month in the United States District Court for the Eastern District of Texas.

"Ericsson is seeking a declaratory judgment that the global, reciprocal cross-licence that Ericsson offered during its negotiations with LG complied with Ericsson's FRAND commitment," it explained.

"Ericsson also claims that LG is an unwilling licensee, failed to negotiate in good faith, and breached its contractual obligation to ETSI [European Telecommunications Standards Institute]."

Ericsson said its CEO, CFO, and three former executives are additionally subject to a putative class-action suit filed earlier this month in the US District Court for the Southern District of New York.

"The complaint alleges violations of United States securities laws, principally in connection with service revenues and recognition of expenses on long-term service projects," it said.

"Ericsson is evaluating the complaint."

Ericsson had in February revealed in its full-year financial results report that it had cut 10,000 jobs during Q4 of 2017 as sales declined across all segments, with restructuring charges for full-year 2018 estimated to be between 5 billion and 7 billion SEK.

Ekholm called 2017 a "challenging" year, with net sales down from 222.6 billion SEK in 2016 to 201.3 billion SEK in 2017. Operating income likewise declined from 6.3 billion SEK to negative 38.1 billion SEK, while net income was down from 1.9 billion SEK to negative 35.1 billion SEK.

Ericsson in January announced a write-down of 14.2 billion SEK ($1.8 billion) following impairment testing and restated financials due to a new segment structure announced last year.

A non-cash tax charge of 1 billion SEK was also announced due to a change in the United States corporate income tax rate.

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