Ericsson's sales growth was slightly negative again in the third quarter, as the company is hurt by the slowdown in sales in China and supply-chain shortages. Revenues fell 2 percent year-on-year and were down 1 percent on an organic basis to SEK 56.3 billion. With market share gains in other countries and higher IPR revenues, EBIT was still up 2 percent to SEK 8.8 billion, and net profit rose 4 percent to SEK 5.8 billion.
As flagged earlier in the year, Ericsson has been losing out on network business in China to local companies. Excluding sales in mainland China, sales at its main Networks division increased by 8 percent in the third quarter, driven by expanding 5G business and growth in Europe and the Americas. However, late in Q3 the company said it experienced "some impact on sales from disturbances in the supply chain", and these issues will continue to pose a risk going forward.
Including China, Networks sales were flat year-on-year on an organic basis at SEK 40.6 billion, and Digital Services rose by 1 percent to SEK 8.6 billion. The latter benefited from the first revenues under 5G contracts, including core products, and Ericsson said the business should over time exceed its target for an EBIT margin of 10-12 percent. IPR licensing revenues increased to SEK 2.6 billion in Q3 from SEK 2.2 billion a year ago, driven by patent agreements signed early in the quarter, including retroactive revenues.
Ericsson confirmed plans to downsize its operations in China due to the slowdown there and said this will result in restructuring charges in the fourth quarter. A recent media report said the company is planning to shut down an R&D centre there and outsource some of its staff.
Ericsson was quiet on the outlook, saying it continues to invest in 5G and growing its Enterprise business. The company confirmed an upgrade in the RAN market outlook by Dell'Oro, to 13 percent growth this year from a previous estimate of 10 percent.
