5G bolsters Ericsson’s Q2

Ericsson logo on building
Ericsson's networks segment generated about $4.03 billion in sales in Q2 and experienced 11% organic sales growth, bolstered by 5G traction and strong sales in North America and North East Asia. (Ericsson)

Ericsson posted solid second-quarter results, with the vendor’s chief executive citing positive momentum in its 5G business.

In Q2, the Swedish telecom equipment supplier increased net income (PDF) to 1.8 billion Swedish kronor (SEK), or about $192.1 million, compared to a net loss of SEK1.8 billion a year ago.

Overall net sales grew 7% year over year to SEK54.8 billion ($5.85 billion), driven by Ericsson’s networks segment. The networks unit alone generated about SEK37.8 billion ($4.03 billion) in revenue and experienced 11% organic sales growth, bolstered by 5G traction and strong sales in North America and North East Asia.

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“We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks,” said CEO Börje Ekholm in a statement. “To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.”

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Ericsson has publicly announced 23 5G contracts around the world. That includes Verizon, AT&T, Sprint, T-Mobile, U.S. Cellular and GCI in the United States. All four of the country’s nationwide carriers have deployed a commercial 5G network, and 5G progress in North America seems to be having a positive impact on Ericsson.  

The North American market accounted for about SEK14.2 billion ($1.52 billion) of Ericsson’s network segment sales. When digital and managed services revenues are included, Ericsson’s overall sales in North America during the second quarter jumped 23% year over year.

Ericsson said it’s on track to hit long-term targets set for 2020 that were put in place after Ekholm became CEO in 2017. The vendor also warned that while strategic network contracts will have a positive long-term benefit, the negative impact on gross margin is expected to increase in the second half of 2019.

In Ericsson’s digital services segment, sales were down 3% from a year ago, attributed to a rapid decline in legacy products. Ericsson said its 5G and cloud native portfolio is gaining customer traction and the company continues to invest in R&D. Sales in Ericsson’s managed services segment declined 6%.

Speaking Wednesday on the company’s quarterly earnings call, Ekholm said that while it is clear the first use case for 5G will be enhanced mobile broadband, the real potential over time will be enterprise-driven use cases.

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Ekholm noted it’s still very early, but connectivity in the enterprise segment is becoming increasingly important.

“Wireless connectivity that is reliable and secure is very hard to get unless you’re on licensed spectrum,” said Ekholm on the call. “So, we see an increasing interest from enterprises.”

The Swedish vendor is seeing interest via partnerships, and Ekholm mentioned “a big win” in Germany with an automotive manufacturer, likely a nod to a partnership announced in late June with Telefonica Germany to build a private 5G network for Mercedes-Benz to allow for 5G-enabled car production.  

While its traditional consumer networks business is still what Ekholm called the vendor’s “bread and butter,” he noted Ericsson is seeing an enterprise segment start to emerge. It is still too early to tell when or how much of an impact that will have on the company’s financials.

Ericsson is not the first to tout the enterprise opportunity for 5G, as others, including rival vendor Nokia and major service providers like AT&T, have also stressed enterprise-driven 5G applications.  

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