Ericsson is feeling the pain as U.S. operators slow their 5G network buildouts and reduce their capex spending. The Swedish company reported a net loss of $59 million in Q2, which is a sharp decline from the $460 million in net profits that it reported for the same quarter a year ago.
However, the company reported that its sales were $6.29 billion, up from $6.1 billion in Q2 of 2022.
Ericsson said that the strong 5G buildout pace in India helped compensate for the weakness in North America, noting that its network sales doubled in the Southeast Asia, Oceania and Indian regions of the globe but declined in North America where operators have lowered their capex spending and reduced their equipment inventory levels after spending big in 2021 and 2022.
Ericsson reported North American net sales for the quarter of $1.4 billion, down from $2.23 billion in Q2 of 2022.
Ericsson President and CEO Borje Ekholm told investors during the company’s quarterly earnings call that Ericsson believes that this trend will continue in Q3 but the company expects to see a bit of a turnaround in Q4 due to seasonal uplifts.
When it comes to 5G, Ekholm acknowledged that the U.S. market is the most advanced in its 5G deployment but said that Ericsson believes that operators are going to need to densify their networks, which will require them to deploy more 5G sites and therefore purchase more 5G base stations.
In addition, he said that Ericsson believes that 75% of all base stations sites outside China are not yet updated with 5G mid-band spectrum gear and that when operators migrate to standalone 5G (SA) they are going to need to deploy more radios, which will drive more equipment sales.
Ekholm also talked about the promise of the Vonage platform and its incorporation of network APIs, which Ericsson believes will be instrumental in creating new use cases and helping operators monetize 5G. “We are continuing to have dialog with leading operators on how to establish the network API market,” he said, adding that Ericsson believes that network APIs, which will be deployed using a communications platform as a service (CPaaS) model, will play a key role in how 5G network resources will be consumed and paid for by end users.
However, when asked for specifics about when operators will be densifying their 5G networks with more base stations or moving to a CPaaS model, Ekholm admitted that the timing of these changes are difficult to predict.
But he said that he believes that many operators will be prompted to densify their networks and move to 5G standalone because they will need to improve network capacity and also to deal with energy costs. “We will see a recovery in the second half of the year. We still think that’s reasonable,” he said.
In the meantime, Ericsson continues to work on its cost savings initiatives that it unveiled in late 2022. Ekholm said that the company is on track to reduce its annual run rate by at least $1 billion by year-end.
Ericsson executives also touted the growth in the enterprise group, noting that the company’s enterprise business grew 20% year over year and now makes up about 10% of group sales. Vonage, which Ericsson acquired for $6.2 billion in late 2021, is part of its enterprise group.
Ekholm said that Ericsson has a strong pipeline of products for the enterprise market and the company has had success working closely with its service provider partners that want to bring enterprise products to market.
When it comes to private wireless networks, however, Ekholm said that while Ericsson believes private wireless has potential for growth, it is still “early in the market.”