Telecom network maker Ericsson said its sales rose 9 percent to SEK 53.8 billion or $5.99 billion in the third quarter of 2018.
Ericsson made a profit of SEK 2.7 billion in Q3 2018 as compared with a net loss of SEK 3.5 billion in Q3 2017.
Ericsson generated sale of SEK 35.9 billion (+13 percent) from network business, SEK 9 billion (+1 percent) from digital business and SEK 6.5 billion (–2 percent) from managed service business in Q3 2018.
Nokia, the main competitor or Ericsson, will announce its Q3 2018 financial result on 25 October. Huawei and ZTE do not reveal their quarterly financial results. They reveal half yearly performance without disclosing much information.
Ericsson achieved gross margin of 36.5 percent (26.9 percent) — driven mainly by cost reductions, the ramp-up of Ericsson Radio System (ERS) and good progress in reviewing Managed Services contracts. Operating margin of Ericsson was 6 percent (–7.4 percent).
“There is strong momentum in the global 5G market with lead markets moving forward. The radio access market is recovering from several years of negative growth and our investments in R&D have positioned us well to benefit from this development,” Ericsson CEO Borje Ekholm said.
Ericsson’s South East Asia, Oceania and India Sales increased slightly, primarily in Digital Services, driven by growth in Australia and India. Networks sales increased slightly, mainly in South East Asia. Managed Services sales declined due to termination of a contract with Reliance Communications in India in 2017.
Ericsson said it is investing in 5G-ready portfolio to enable customers to migrate to 5G from 4G networks. The customer interest in 5G generates a gradual increase in costs for field trials.
“We expect the costs to remain on high levels, at least for the coming 12-18 months, and they are included in 2020 profitability target of at least 10 percent,” Ericsson said.
Ericsson has reduced its employee base – a net reduction of 761 employees in the quarter and of 11,353 employees compared with Sep 30, 2017. Ericsson said the number of employees fell to 94,499 in Q3 due to activities under the cost reduction program.
Ericsson aims to improve the operating margin to 15-17 percent by 2020 for the Networks business. Ericsson Radio System (ERS), which was introduced in 2015, accounted for 86 percent of total radio unit deliveries year to date.
Ericsson will renegotiate or exit 45 managed services contracts. Ericsson aims to address approximately 50 percent of those contracts in 2018. Ericsson addressed 19 contracts at the end of Q3 2018.
The target for managed services is to improve the operating margin to 4-6 percent in 2020. Ericsson identified 42 managed services contracts out of nearly 300 for exit, renegotiation or transformation. It addressed 40 of the 42 contracts, resulting in an annualized profit improvement of approximately SEK 0.9 billion.
Baburajan K
