Ericsson maintained its organic sales growth at 7 percent in the second quarter, driven by a solid performance at its Networks division with growth in North America and Asia. Reported sales grew 10 percent to SEK 54.8 billion, helped by currency effects, and the gross margin rose to 36.6 percent from 34.8 percent a year ago.
The company's operating margin, excluding restructuring charges, rose to 7.0 percent from 4.1 percent in Q2 2018. The group net result improved to a profit of SEK 1.8 billion from a loss of SEK 1.8 billion a year ago.
The Networks division posted organic sales up 11 percent, while the adjusted gross margin of 41.4 percent was up slightly from a year ago but down versus Q1. Revenue growth was driven by 4G and 5G investments in North America and North East Asia as well as increased volumes in strategic contracts, Ericsson said. While the strategic contracts will add to margins in the long term, the impact on near-term profitability is negative, and Ericsson said the negative effect on the gross margin will increase during the second half of the year.
The market outlook remains largely unchanged, with the RAN segment predicted to grow around 3 percent this year. Ericsson said 5G momentum is increasing and it expects the volume of the business in the US to continue through 2019. 5G deployments will start in Asia by year-end and start to impact margins in the short term.
The company said its reshaped BSS business is also gaining momentum, but quarterly results in the Digital Services division will fluctuate. Organic sales at the division fell 3 percent in Q2 due to the loss of legacy product sales.
Ericsson also reduced its forecast for restructuring costs this year to SEK 2-4 billion from a previous estimate of SEK 3-5 billion.
