Ericsson achieved respectable second-quarter results despite the challenges presented by the COVID-19 crisis. The Swedish vendor’s network business grew 4% and overall net income was $287 million.
With more than 80% of its workforce working from home, the company said it’s difficult to predict the current market given the uncertainty as a result of COVID-19, but it remains committed to its group targets for 2020 and 2022.
Ericsson President and CEO Börje Ekholm said during the earnings conference call that it’s seen some reduction in sales due to macroeconomic uncertainty and COVID-19, mainly in Latin America, Africa and India. In Europe and Latin America, it’s seen a reduction on managed services contracts, but that’s partly offset by growth in network sales in Europe, due to market share gains “coming from technology leadership,” he said.
In North America, there’s continued 5G momentum, leading to increased sales in the Networks division; however, sales in its Digital Services segment and Managed Services decreased, as was expected, due to the merger of Sprint and T-Mobile. In northeast Asia, it has seen strong network and digital sales, driven primarily by 5G deployments in Mainland China.
Ericsson now has 99 commercial 5G contracts and 54 live 5G networks working across 27 countries.
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Asked about a future without one large competitor in the U.K., where a ban on Huawei 5G equipment takes effect in January, Ekholm said the company remains optimistic about the future of the industry, but so far, the geopolitical discussions are hardly visible in its revenues, because “our market share gain really has come from other players, so to say.”
“It's really a result of the technology investments we've made, and we believe those are going to continue to pay off as long as we focus on delivering and executing on the investments we are making. So we are optimistic about the future,” he said, according to a Seeking Alpha transcript.
Finnish rival Nokia has been more active in Open RAN initiatives and Ekholm was asked if it’s time for Ericsson to be more vocal in this area.
The CEO said Ericsson also is working actively in the Open RAN Alliance and driving standards of Open RAN. “We are also big believers of that,” he said. “What we see is that in high-performance applications, you need to solve a number of different use cases… That includes the purpose-built basic for high-performance as well as possibly open solutions for more lower-end performance requirements. So we are focusing on delivering the solutions to the customer, less about marketing.”
He later added that for the high-performance applications today, “we do not see ORAN as a way to speed up the rollout. It's rather a way to slow down right now. But that – we're going to be – when ORAN is ready, we're going to be there.”
Q2 results
Ericsson’s second-quarter operating margin increased to 6.9%, up from 6.8% in the same quarter a year ago.
Gross margin excluding restructuring charges improved to 38.2%, including a write-down of assets costing around $108.6 million. Ericsson in June had warned about the impact from the inventory write-down, which is related to 5G contracts it won in China and attributed to high initial costs for new products. Ericsson expects the China contracts to have a positive impact on income later this year.
Networks operating margin was 14.1% in the second quarter, impacted by strategic contracts and the asset write-down, which was partially offset by operational leverage and a favorable business mix.
Bevin Fletcher contributed to this report.