Ericsson reports first quarter results 2022

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Ericsson, after announcing business suspension in Russia, has announces the first quarter results of 2022. The company’s organic sales grew by 3% YoY driven by Networks in North America, Europe and Latin America. Its reported sales were SEK 55.1 (49.8) b.

‘We continue to execute on our strategy to be a leading mobile infrastructure provider and to establish a focused enterprise business. We see strong business momentum and our investments in technology and a resilient supply chain have allowed us to continue to win market share and deliver on customer commitments in spite of global supply chain challenges.’

Börje Ekholm, President and CEO of Ericsson

In the quarter, we saw organic sales[1] growth of 3%. Gross margin at 42.3% (42.8%) indicates underlying stability while absorbing cost increases in the supply chain. Our EBITA margin was 11.0%, adjusted for revaluation of holdings and provision related to Russia.

Talking about suspension of services in Russia, he said, ‘Russia’s invasion of Ukraine and the resulting humanitarian disaster is a major setback for the world. While mobile infrastructure is essential for communications in Russia, it has been clear from the start of the invasion that business in Russia would have to be reconsidered.’

Following current sanctions, we have announced an indefinite suspension of our affected business in Russia and recorded a provision for impairment of assets and other extraordinary costs of SEK -0.9 b. in Q1. 

Ekholm said that in our core mobile infrastructure business, we foresee a longer investment cycle compared with previous mobile generations as 5G’s broad application usage will drive a continued need to increase capacity. Technology leadership is driving our competitiveness, and in the quarter, we invested SEK -10.7 (-9.6) b. in R&D.

Ericsson’s gross margin was 44.7% (46.1%) and networks sales grew organically by 4% in Q1 . Ekholm in his statement also cleared that the company’s Software sales vary between quarters, and a certain SEK 1 b. annual software contract that is normally recorded in Q1, is this year delayed into Q2. 

Ericsson’s gross margin was also negatively impacted by proactive investments in supply chain resilience. R&D increased by SEK -1 b. YoY was primarily related to the company’s Cloud RAN portfolio, which gives customers more flexible deployment options, and to next generation ASICs that provide industry-leading radio performance, energy savings and footprint reduction.Digital Services organic sales were down by -2% YoY in the quarter and EBIT was SEK -1.4 b. 

Remarking on the overall results, he said, ‘However, the overall result in the quarter is not satisfactory. The target of a limited loss for 2022 is challenging especially in light of the increased investments in R&D in service orchestration and 5G portfolio. We now increase focus on accelerating sales growth and addressing efficiency to improve profitability.’        

Ericsson’s IPR licensing revenues in Q1 were affected by several expiring patent license agreements pending renewal and by 5G license negotiations. We are confident in our strong 5G position and leading patent portfolio, positioning us well to conclude pending and future license renewals. Revenues from current IPR licensing contracts are estimated to SEK 1.0–1.5 b. in Q2. The actual revenue impact will depend on timing as well as terms and conditions of new agreements, he added.

Ekholm also concluded that in light of the global supply chain challenges, we decided to create a buffer of vital components in order to secure that we meet customer delivery commitments. In the quarter this had a material impact on inventory levels and therefore Free cash flow before M&A amounted to -1.7 (+1.6) b. We expect elevated inventory levels to remain in the next few quarters.

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