Ericsson Q2 revenues fall 1% on China slowdown, Networks still up strongly on 5G demand

Nieuws Mobiel Wereld 16 JUL 2021
Ericsson Q2 revenues fall 1% on China slowdown, Networks still up strongly on 5G demand

Ericsson reported second-quarter revenues down 1 percent year-on-year to SEK 54.9 billion, hurt by a drop in sales in China. On an organic basis, excluding changes in scope and currency effects, revenues were up 8 percent, thanks to continued robust growth at its Networks division. Adjusted EBIT jumped 29 percent to SEK 5.8 billion, helped by improved operating leverage and the company's restructuring efforts, and net profit was up 51 percent to SEK 3.9 billion.

Ericsson said sales from mainland China were down by around SEK 2.5 billion compared to the year-earlier period. The company said it may be feeling the impact of Sweden's ban on Chinese 5G suppliers, with the same treatment for its business in China. 

Nevertheless, the Networks division posted sales up 11 percent on an organic basis to SEK 39.9 billion, and the EBIT margin at Networks improved to 21.7 percent from 13.2 percent a year ago. Excluding mainland China, underlying sales were up 17 percent.

Ericsson said it was gaining market share at Networks and growing in most regions, including the rest of northeast Asia. Production has accelerated to meet the customer demand, and the supply chain is holding up well, according to the company. Ericsson separately announced its single largest contract ever, worth USD 8.3 billion over five years in the US. 

Digital Services felt the impact of lower Chinese sales more, with total revenues flat on an organic basis. Its EBIT loss widened to SEK 1.6 billion from SEK 0.7 billion, impacted by a write-down of SEK 0.3 billion for pre-commercial product investments for the Chinese market.

Ericsson said its profitability target for the division in 2022 may be at risk from the slowdown in Chinese business, but much will depend on later in 2022 when sales of core products ramp up. It aims to meet the original EBIT margin target of 4-7 percent for Digital Services thanks to a strong product portfolio with growth in other markets outside China.  

The company was otherwise positive on the outlook. The forecast for the RAN market was increased to 10 percent growth in 2021 from a previous estimate of 3 percent, based on research by Dell'Oro. 

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