Mixed bag sees Ericsson report steady second quarter

China and 5G provide bright spot against revenue retreat in managed services and digital services.
Written by Chris Duckett, Contributor

Ericsson has reported a steady second quarter, with revenue up 1% to 55.6 billion Swedish krona, operating income up by 3% to 3.7 billion krona compared to the same period last year, and a 40% increase in net income to 2.6 billion krona.

Breaking down the results reveals a patchwork performance amongst the telco equipment manufacturer's divisions and geographies.

Its network segment grew sales by 5% to 39.8 billion krona, but profitability was down by 1% with operating income coming in at 5.6 billion krona. Managed services saw its revenue fall by 12% to 5.6 billion krona compared to last year, but operating income improved by almost a third to 0.3 billion krona. Ericsson's digital services segment saw revenue fall 5% to 8.6 billion krona while its operating loss reduced from 1.3 billion krona last year to 0.7 billion krona, while its emerging business division saw revenue drop 4% to 1.6 billion krona and its operating loss shrink slightly to 0.6 billion krona.

By geography, China was the clear standout, pushing sales in its North East Asia segment up by 20%, and accounting for 14% of all revenue. North America was the only other geography to increase sales, growing by 4% to make up a third of all sales. Elsewhere in the world, Europe and Latin America were down 7% to be just under one quarter of all revenue, the Middle East dropped 4% to account for 10% of sales, and the South East Asia, Oceania, and India segment dropped 5% to make up 12% of total revenue.

"The strengthened market position in Mainland China is strategically important as this market is expected to be a driver of critical future requirements and provide us with important scale," president and CEO Börje Ekholm said in prepared remarks.

"The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2."

The company said uncertainty related to the coronavirus pandemic and macroeconomic conditions hit its sales.

"As we prepare to exit the crisis caused by Covid-19, there is a need to restart economies and make strategic, forward looking investments which we suggest must include the future digital infrastructure," Ekholm said.

"We see many regions around the world increasing investments in this space and as a European company we are concerned that Europe will fall behind. As critical national infrastructure, 5G will be a key determinant for long-term competitiveness of the general economy, and act as a stimulant to accelerate economic growth, attract future investments and speed up technology innovation."

This quarter was the first to encompass the three years of oversight from US authorities after Ericsson agreed to pay over $1 billion in fines to US regulators. The company pleaded guilty to bribing government officials in multiple countries over a 17-year period.

As of June 30, Ericsson employed 99,800 people, an increase of 705 employees in the quarter, despite having 0.7 billion krona in restructuring charges due to exiting certain businesses. The company said its new hires were mostly in research and service delivery divisions.

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