In Q4 2022 Ericsson warned that its Networks business might decline some in 2023 due to slowing capex spend by North American operators and also due to these operators having built up their inventories. Those warnings became a reality during Ericsson’s Q1 2023, which the company reported today.
Its Networks organic sales declined by 2% during the first quarter, driven by lower operator capex and inventory optimization among multiple customers.
Börje Ekholm, president and CEO of Ericsson, said, “As expected, customers in early 5G markets have slowed the deployment pace somewhat. Our effect on sales is bigger as some customers have also lowered the elevated inventory levels built up in a tight supply environment.”
The company expects this inventory adjustment to be mostly completed by the third quarter of 2023.
For the first quarter, the company reported an increase in net sales overall compared to the previous year, but a drop in net income. Its net income of $155 million (SEK 1.6 billion) was a decrease of 46% year over year with a corresponding drop in earnings per share of 49% year over year.
Ekholm said, “We continue to see a choppy environment during 2023 with poor visibility. In Q2, we expect operators to remain cautious with capex investments and continue to adjust inventories.”
Cost saving plan
In Q4 2022 Ericsson said it would implement additional cost saving initiatives of $873,000 million (SEK 9 billion), beginning in Q2 and taking full effect by the end of 2023.
But now, the company is boosting those cost saving plans as part of a cost restructure. It has identified additional savings opportunities of $194 million (SEK 2 billion) by year-end.
Ericsson CFO Carl Mellander said, “When it comes to restructuring it touches on many, even all, parts of our company and many geographies. We have savings targets on basically all managers. The increase now we presented today is more tilted toward the opex side, and there’s also some R&D components in there.”
Choppy 2023
Similar to Q4 2022, Ekholm said that Ericsson is in the middle of a business-mix shift. On the one hand early 5G operators in North America are cutting back on capex and using their existing inventories. But on the other hand, operators in India are just beginning their 5G deployments, which is benefiting Ericsson.
Mellander said the rollout in India will peak around the end of this year but will still continue at a high level.
CFO transition
Ericsson also announced that CFO Mellander will step down at the end of the first quarter 2024. Mellander has been with Ericsson for over 25 years and has been a member of its Executive Team since 2016. A recruitment process will be initiated to appoint a successor.
Ekholm stated, “I am happy he will stay on in the role until the end of Q1 2024, which allows for finding and ensuring a smooth handover to a successor."
Deal with Canada
Finally, yesterday Ericsson and the Government of Canada announced a five-year R&D partnership valued at more than CAD 470 million. The investment will support R&D at Ericsson’s Ottawa, Ontario and Montreal, Quebec facilities, as well as Ericsson’s recently established Quantum Research hub in Montreal.
