Ericsson reported that it has made progress in its effort to regain its financial footing—and that North American network operators are playing a major role in that effort.
“We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G,” Börje Ekholm, Ericsson’s president and CEO, said in a statement released in conjunction with Ericsson’s second quarter earnings.
Indeed, Ekholm said that operator discussions worldwide about 5G have gained steam during the past six months, and that the company is seeing more traction on the topic than current 5G reports indicate. “Demand for data basically doubles every 18-24 months and we’re seeing operators investing again in their product offering in order to manage this traffic increase,” Ekholm said on Ericsson’s earnings call, according to a Bloomberg report.
Ericsson’s North American bright spot doesn’t come as a total surprise. Verizon, Sprint and T-Mobile have all named the vendor as one of the suppliers of their respective 5G efforts. And all of the major operators in the United States are rushing toward commercial 5G launches later this year and into next year. For example, AT&T has promised to switch on up to a dozen cities with commercial mobile 5G services this year, while Verizon said it will begin selling fixed 5G offerings in four cities by the end of 2018. And wider deployments, including from T-Mobile and Sprint, are scheduled to follow next year.
It’s that 5G momentum that Ericsson executives are pointing to in offering their positive outlook on the company’s future. Indeed, Ericsson said that the RAN equipment market will fall 2% this year but will then grow at a 2% compound annual growth rate for the period 2017-2022. As a result, Ericsson in the second quarter reiterated its belief that it will reach 12% operating margin beyond 2020.
However, Ericsson’s current progress toward that goal has been difficult. Ekholm was installed as Ericsson’s CEO at the end of 2016, and he has overseen a significant reduction in Ericsson’s expenses, work that has resulted in the reduction of a total of 20,500 jobs at Ericsson, including 2,000 during the second quarter.
Further, in the second quarter Ericsson reported a 1% year-over-year decline in overall net sales and a widening net loss, but the company’s operating income turned positive for the first time since 2016 and Ericsson’s stock jumped almost 10% this morning following the release of the company’s earnings. The company’s results were “better than expected across the board for Ericsson with a trend of good execution starting to emerge,” UBS analysts wrote in a note to clients, according to Bloomberg.
While Ericsson continues to declare momentum in its networks business—which still accounts for the bulk of the company’s revenues—the same cannot be said for Ericsson’s other divisions. For example, Ericsson recently announced that it will divest its Media Solutions unit, recently renamed MediaKind, by the end of the third quarter. Similarly, Ericsson today appointed Jan Karlsson as the new head of its struggling Digital Services unit.