Ericsson sees ‘uncertainties’ after earnings miss estimates

The Stockholm-based company said first-quarter earnings would also be “somewhat lower” than a year ago

Fri, 20 Jan, 2023 - 13:29

Rafaela Lindeberg

Ericsson AB reported a bigger-than-expected drop in fourth-quarter earnings after some of its major customers for 5G networks pulled back on spending following an uncertain economic environment.

The Swedish maker of mobile networks on Friday reported an adjusted earnings before interest and taxes of 8.1bn Swedish kronor (€725m) in the quarter, well below analysts’ estimate of 10.74 billion kronor, according to the average in a Bloomberg survey.

The Stockholm-based company, one of the world’s biggest providers of 5G networking equipment, said first-quarter earnings before interest, taxes and amortization excluding restructuring charges, would also be “somewhat lower” than a year ago and forecast lower margins on its networks business in the first half of 2023.

Cost-savings initiatives will start having an effect beginning in the second quarter, the company said in the statement.

“There are near-term uncertainties, however, we are still in the early phase of global 5G rollout and widespread enterprise digitalization,” Chief Executive Officer Borje Ekholm said in the statement.

Ericsson shares fell 7.9% in Stockholm after earlier dropping as much as 8.5% to the lowest level since 2018. The stock had declined about 40% in the 12 months through Thursday.

Mobile operators globally have spent billions on the rollout of fifth-generation mobile networks, which offer faster speeds and lower latency, allowing applications such as connected devices. Ericsson and Finnish rival Nokia are the biggest European companies offering the networks.

Still, larger 5G customers have been reducing the inventory that they built up during a global supply-chain crunch, Chief Financial Officer Carl Mellander said in an interview. The company is instead focusing on emerging markets for the technology, such as India.

A patent license agreement with Apple Inc., running for several years, boosted revenue from intellectual property rights in the fourth quarter.

The report included an already-flagged 2.3 billion-kronor provision for a potential fine regarding alleged breaches of Ericsson’s deferred prosecution agreement with the US Department of Justice. The company had also flagged a one-time hit of about 1 billion krona in its Enterprise business, related to the divestment of its IoT Accelerator.

Ericsson stock is down 40% over the past year, with management previously warning 2023 could be difficult, with Ekholm saying it would be “choppy.” To offset the headwinds, the company last month flagged an acceleration of its plan to cut 9 billion kronor in costs by end of 2023. These cost cuts are “on track,” Mellander said after the report.

“When it comes to inflation, we have actually been able to mitigate most of that in the quarter,” Mellander said. 11 analysts tracked by Bloomberg recommend buying the stock, 17 had a “hold” recommendation and 4 recommend selling.

Bloomberg