Ericsson banks first profit since 2016, but bribery scandal penalties are looming

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Ericsson reported quarterly results. (Monica Alleven/Fierce Wireless)

Corrupt business practices dating back to 2007 have led to the dismissal of 50 employees and will likely result in a “material” fine for Ericsson once the Justice Department and Securities and Exchange Commission complete their investigation into the matter, the Swedish company said Thursday.

During an earnings call with analysts, CEO Börje Ekholm said the company found evidence of corruption during an internal investigation and reported those findings to authorities. “We don’t know how the discussions will go, but we think it is likely that some measures will be taken,” he said.

Top executives at the company were allegedly involved in a bribery scandal in Africa, Asia, Europe and the Middle East. Ekholm said the company has declined to make provisions against the expected financial penalties because it’s unsure of the magnitude of what the ongoing investigation will uncover.

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The tempered admission of guilt on the part of Ericsson overshadowed an otherwise successful quarter for the business, its first profitable quarter since June 2016. Investments in research and development along with 18 months of cost reductions are finally contributing to the company’s financial performance, according to Ekholm. The company has laid off 22,000 employees since June 2016 and had a total head count of 95,000 workers at the end of September.

Strong demand for 5G network equipment in the United States also boosted sales to almost $6 billion during the quarter. “There is strong momentum in the global 5G market with lead markets moving forward,” Ekholm said in a statement. “More work remains, however, to get all parts of the business to a satisfactory performance level.”

Net sales in North America, the company’s biggest regional market behind Europe, jumped 21% year over year and network equipment sales increased 24% in North America during the same period.

Ericsson banked a net profit of $304 million during the quarter. Sales in North America reached nearly $1.7 billion during the quarter, representing almost 28% of its entire business. The company forecasts a steady research and development cost during the final quarter of 2018 and says it will primarily focus those expenses in the network division.