Ericsson reported a bigger-than-expected drop in fourth-quarter earnings as margins came under pressure from a shift in the pattern of carriers’ demand for its 5G equipment.
The Swedish maker of mobile networks on Friday reported an adjusted earnings before interest and taxes of 8.1 billion kronor (€723.6 million) in the quarter, less than the analysts’ estimate of 10.74 billion kronor, according to the average in a Bloomberg survey.
The Stockholm-based company, one of the world’s biggest providers of 5G networking equipment, said first-quarter earnings before interest, taxes and amortisation, excluding restructuring charges, would also be “somewhat lower than a year ago” and forecast lower margins on its networks business in the first half of 2023. Cost-savings initiatives will start having an effect beginning in the second quarter, the company said in the statement.
“There are near-term uncertainties; however, we are still in the early phase of global 5G roll-out and widespread enterprise digitalisation,” chief executive Börje Ekholm said in the statement.
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Mobile operators globally have spent billions on the roll-out of fifth-generation mobile networks, which offer faster speeds and lower latency, allowing applications such as connected devices. Ericsson and Finnish rival Nokia are the biggest European companies offering the networks.
A patent licence agreement with Apple, running for several years, boosted revenue from intellectual property rights in the fourth quarter.
The report included an already-communicated provision of 2.3 billion kronor for a potential fine over alleged breaches of Ericsson’s deferred prosecution agreement with the US Department of Justice. The company had also flagged a one-time hit of about 1 billion kroner in its Enterprise business, related to the divestment of its IoT Accelerator.
Management had warned 2023 would entail “large uncertainty with customers, especially in the US”, guiding for lower capital expenditures. The chief executive had even called the year “choppy”. To offset short-term headwinds, such as business mix changes and inflation, the company last month flagged an acceleration of its plan to cut 9 billion kronor in costs by end of 2023.
Ericsson shares had declined about 40 per cent over the past 12 months through Thursday.
– Bloomberg
