Ericsson reported first-quarter sales up 2 percent and an improvement in its underlying margins. The company said it was seeing limited impact from the Covid-19 pandemic on its business and maintained its outlook for growth in 2020 and the medium term.
Revenues in the first three months of 2020 rose 2 percent to SEK 49.8 billion. Sales were down 2 percent on a comparable basis, as a flat result at Networks was offset by lower revenues from digital and managed services. Ericsson said sales increased in North America, Saudi Arabia and Japan and declined in Latin America, China and India.
The gross margin excluding restructuring charges improved to 40.4 percent from 38.5 percent a year ago, driven by a favorable business mix, including an increased software share, the company said. After restructuring charges of SEK 0.3 billion and one-time gains in the year-earlier period, operating profit fell 12 percent to SEK 4.3 billion. Excluding the one-time items, the operating margin improved to 9.3 percent from 7.2 percent. Net profit was down 5 percent to SEK 2.3 billion.
Ericsson said it expects the operational improvements to continue in the course of this year, while its latest forecast for the underlying RAN equipment market is 4 percent growth in 2020. Underlying business fundamentals remain strong, CEO Borje Ekholm said.
The usual seasonal sequential growth in Q2 may be slightly weaker due to the impact of the coronavirus measures, which will start to affect supply chains if movement restrictions continue for a long time. The slowdown in the economy may lead some operators to delay spending as well. The financial targets for 2020 take into account an increasing share of strategic contracts, including 5G in China. However, Ericsson expects a larger share of these contracts to weigh on profitability in Q2, rather than being evenly distributed over the year.
Ericsson expects a positive impact from the T-Mobile/Sprint merger in the second half, although its managed services business will be affected by the deal from Q2. Its position in the European 5G market is also improving, but the company expressed concerns about delays in 5G roll-out there. Ericsson called on European government to encourage 5G investment as part of economic recovery measures.
