Ericsson has maintained its full-year and 2022 targets, after reporting a small increase in sales and improving margins for Q2. Underlying revenues at its main Networks business rose 4 percent in the quarter, helped by continued 5G expansion in North America and deployments in northeast Asia.
Total revenues increased 1 percent to SEK 55.6 billion and were flat on an organic basis excluding currency effects. Ericsson said the growth in North America and Asia was offset by lower sales in India and Latin America, which were impacted more by the economic slowdown and Covid-19 pandemic. The Digital Services unit also posted sales down 5 percent on an organic basis, as higher software sales were offset a drop in services, and Managed Services reported a 12 percent fall in underlying revenues.
Margins were less affected by the pandemic and supported by ongoing restructuring efforts. The gross margin excluding restructuring charges rose to 38.2 percent from 36.7 percent a year ago, thanks to improvements in Digital Services and Managed Services, as well as a higher share of IPR licensing revenues. The Networks gross margin declined due to the earlier announced write-down on Chinese inventory as well as a larger share of strategic contracts including 5G.
Operating profit rose to SEK 3.9 billion from SEK 3.7 billion a year ago. Excluding restructuring charges, the margin increased to 8.2 percent from 7.0 percent, putting the company closer to its target of 10 percent in 2020. Net profit rose to SEK 2.6 billion from SEK 1.8 billion, also helped by positive hedging effects.
Ericsson posted a net increase of 705 employees in the quarter, to a total of 99,800, due to expansion in R&D and service delivery mainly. R&D spending was up slightly year-on-year to SEK 10 billion. Restructuring charges increased to SEK 0.7 billion, covering the exit of the Edge Gravity business as well as the ongoing restructuring of the acquired antenna and filter business in Networks.
CEO Borje Ekholm said the R&D investment had helped the company grow in the 5G market, with its market share improving in several markets and profitability on earlier contracts also rising. Strategic contracts like the business in China may weigh on initial results but are considered a normal part of business and expected to be profitable over their lifetime, he noted.
On the outlook, there are some signs of customers accelerating investments, to capitalise on the digital transformation spurred by the pandemic, while other companies are more cautious. With the current visibility, Ericsson said it expects to achieve its targets for 2020 and 2022. This is based on expected 4 percent growth in the RAN market this year and a 0 percent CAGR in 2019-2024.
