In Stockholm, Ericsson’s shares soar after a third quarter that far exceeded expectations

(Il Sole 24 Ore Radiocor) - Ericsson soars on the Stockholm Stock Exchange thanks to third-quarter results that were significantly better than expected. The company has also unveiled a plan to streamline its operational structure, with the aim of strengthening customer relationships and improving efficiency, whilst warning that rising component costs will impact profitability next year. Shares in the telecoms equipment supplier rose by around nine points.

Ericsson reported a net profit of 5.8 billion kronor (-49 per cent) and an EBIT of 8.9 billion in the third quarter, down 41 per cent but higher than the forecast of 7.1 billion kronor. Revenue rose by 6 per cent to 59.5 billion kronor (+7 per cent on an organic basis), compared with the expected 55.28 billion kronor, whilst the group’s gross margin fell to 47.1 per cent from 47.6 per cent. Ericsson stated that its core network equipment division recorded organic sales growth of 9 per cent in the third quarter, driven by project deliveries in Japan and India and the ongoing modernisation and expansion of networks in the Middle East.

Sales in the North American network division also rose slightly. The company reported an adjusted gross margin of 50.3 per cent in the third quarter for its Networks division, slightly above the target of between 48 per cent and 50 per cent, and indicated that the margin is expected to be between 49 per cent and 51 per cent for the fourth quarter. The group’s adjusted EBITA margin fell from 28.1 per cent to 17 per cent, but this is better than the forecast of 14.2 per cent. The Swedish group highlighted that component costs had risen during the quarter.

These results are the first under the leadership of the new chief executive, Per Narvinger, a long-serving employee of the company who previously headed the networks division and succeeded Borje Ekholm on 1 October. “Looking ahead, the radio access network (RAN) market is stagnating, geopolitical uncertainties remain high and component costs are weighing on gross margin,” Narvinger warned in a statement. Back in July, Ericsson had already indicated that the group was under pressure due to rising memory chip costs caused by soaring demand for artificial intelligence.

The Swedish group has also announced the creation of a new Asia-Pacific market region, effective from January, which will bring together the markets of North-East Asia, South-East Asia, Oceania and India. The consolidation of these markets will enable more efficient operations across the region, whilst maintaining a strong presence at national level and with customers, the company said. The new APAC market region will be led by Patrick Johansson, who currently heads the Europe, Middle East and Africa region. The company has launched a selection process for the appointment of a new head of the EMEA region.