Ericsson Sales Beat Shows Carriers Still Upgrading Networks

Ericsson AB weathered the start of the coronavirus crisis better than expected after phone companies kept spending to support networks strained by the surge in home working and streaming.

  • The Stockholm-based company on Friday reported second-quarter sales of 55.6 billion kronor ($6.1 billion), compared with the average analyst estimate of 54.8 billion kronor. Its adjusted gross margin was higher than expected, at 38.2%.
  • “Despite the difficult environment we delivered a solid result,” said Chief Executive Officer Borje Ekholm in a statement. “Some customers are accelerating their investments while others are temporarily cautious.”

Key Insights

  • The numbers confirm the pandemic is revealing shortcomings in global network capacity that are helping prop up demand for Ericsson’s antennas, routers and switching gear. The company maintained previous results guidance.
  • “While the effects of Covid-19 create uncertainties, with current visibility Ericsson sees no reason to adjust 2020 and 2022 full-year targets for the Group,” the company said.
  • Ericsson’s position could also be strengthened if a U.S. campaign against its Chinese rival Huawei Technologies Co. continues to gather steam. This week the U.K. banned Huawei from 5G, turning the market into a duopoly of Ericsson and Finland’s Nokia Oyj.
  • Ericsson’s profitability will still be held back in the near-term because it is expanding its presence in China, where carriers are building 5G networks set to yield billions of dollars of revenue down the line.

Market Context

  • Ericsson shares recently returned to their level before the coronavirus crisis sent stock markets tumbling in March. Sixteen of the 30 analysts tracked by Bloomberg have buy recommendations for the stock, and none of them advise clients to sell.

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  • See more on the results here
  • “As we prepare to exit the crisis caused by Covid-19, there is a need to restart economies and make strategic, forward looking investments which we suggest must include the future digital infrastructure,” the company said.

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