Ericsson’s losses narrow, North American business ramping up

As Ericsson highlighted in its first-quarter earnings report, it has engaged in a significant round of layoffs since embarking on a major cost-cutting effort last year. (Ericsson)

Ericsson reported first-quarter results that appeared to cheer investors, sending the company’s Swedish shares up after the news. Importantly, the company’s losses narrowed, an indication that CEO Börje Ekholm’s aggressive cost-cutting efforts—which have included the reduction of thousands of jobs during the past several quarters—are beginning to help Ericsson return to profitability.

Further, Ericsson reported momentum in its North American business; the company is a major equipment supplier to the likes of T-Mobile, Verizon and others.

“Reported sales declined YoY, while currency-adjusted sales increased by 6%,” Ericsson reported of its North American business. “This growth was driven by Networks due to investments in network expansions and in 5G readiness. Digital Services sales declined YoY, due to timing of project milestones. Managed Services sales declined.”

Overall, Ericsson’s first-quarter loss shrank to just $35.6 million, far better than the massive loss the company reported in the same quarter a year ago and also significantly better than what Wall Street analysts had predicted. Further, Ericsson’s gross margin rose to 35.9% in the period, way up from the 18.7% it notched in the year-ago quarter.

Those numbers of course have come at a steep price. As Ericsson’s Ekholm noted, the company reduced its total workforce by more than 3,000 during the first quarter, bringing the total number of jobs cut at the network equipment vendor to fully 18,000 since July of last year.

“The improvements in the quarter are encouraging,” Ekholm said in a statement from the company. “However, more work remains to be done. We have confidence in the strategic direction laid out and remain fully committed to our long-term targets. Looking ahead, we expect the rapidly increasing focus on 5G to continue, with initial business discussions focusing on enhanced mobile broadband. We continue to work closely with customers to define the optimal business models to enable them to tap into new revenue streams and capture the full value of 5G.”

Overall, Ericsson said it expects the RAN equipment market to fall by 2% this year, but to show a compound annual growth rate of 2% between 2018 and 2022.

Ericsson is one of the world’s leading wireless network equipment vendors, alongside Huawei and Nokia, and has been working to improve its footing amid a global slowdown in carrier spending as the world’s wireless network operators put the finishing touches on their LTE networks. Ericsson, along with most of the rest of the world’s top network equipment suppliers, is hoping that carriers generally increase their spending in the coming months in order to upgrade their networks to the newly minted 5G network technology standard.

Importantly, Ericsson, Huawei and Nokia may have caught a break in their pursuit of new network equipment sales following the U.S. Commerce Department’s recent action to block ZTE from exporting sensitive technology from the United States. The agency issued the block due to what it said was ZTE’s false claim that it reprimanded employees involved in illegally shipping telecom equipment to Iran and North Korea.

Ericsson’s CEO declined to address the situation surrounding ZTE, according to Bloomberg, including whether it might aid Ericsson. But ZTE said in a statement that the ruling was “unacceptable” and that it would “not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of U.S. companies.”