Stockholm snaps Ericsson, second quarter better than expected

(Il Sole 24 Ore Radiocor) - Ericsson is racing on the Stockholm Stock Exchange on the back of second-quarter accounts that turned out to be better than the market's rather gloomy expectations. The Swedish telecoms equipment maker's stock gained more than seven points, making it one of the best performers in the Stoxx Europe 600 index. Ericsson posted a seven per cent drop in revenues to 59.9 billion kronor from 64.4 billion a year ago, but analysts were predicting an even steeper decline to 58.3 billion. Weak demand for 5G equipment in most markets was slightly offset by 14% growth in North America, the company explained.

The group posted a net loss of SEK 11 billion in the quarter, compared to a red of SEK 0.6 billion in the same period last year, due to the impairment of the US cloud specialist Vonage acquired in 2021, which had already been disclosed to the market. Adjusted (net of impairment), the result for the quarter was a positive 1.7 billion. Gross margin also improved to 43.9 % (above expectations) from 38.3 % and free cash flow before M&A was positive at 7.6 billion versus -5 billion last year. "In the second quarter we maintained our market-leading position, returned to growth in North America and achieved strong gross margin and free cash flow expansion. We focused on the issues within our control to optimise our business in a challenging market environment, with unsustainably low levels of investment in the business," said CEO Borje Ekholm, quoted in a note.

"We expect market conditions to remain difficult this year as the pace of investment in India slows down. However, our sales will benefit in the second half of the year from anticipated deliveries from the North American contract," the CEO added. Earlier in July, Ericsson had disclosed a further write-down of Vonage by SEK 11.4 billion, following an initial write-down in 2023. Analysts at Jefferies expect Ericsson's revenue and gross margin to strengthen further in the second half of the year due to the implementation of orders from AT&T and the fact that the Swedish company continues to benefit from cost-cutting efforts. According to the US bank's experts, the strong gross margin is the result of increased licensing revenues, cost-cutting efforts, and geographic mix. Jefferies rates Ericsson as a 'buy' with a price target of SEK 70.