Ericsson sees sales stabilizing soon after first-quarter profit beat
Telecom equipment maker Ericsson reported on Tuesday a first-quarter adjusted profit that beat expectations and said sales might stabilise in the second half of the year despite weak demand for 5G gear.
Ericsson said on Tuesday it expects sales to stabilize in the second half of 2024 amid signs some customers are looking to spend again, as the telecoms equipment maker beat first-quarter profit forecasts helped by a one-off gain.
The Swedish group pointed to recent contract wins and normalizing customer inventory levels in North America.
Its shares were up 6% in early trade, to levels last seen at the start of the month.
However, Ericsson also predicted the 5G Radio Access Network (RAN) market would keep falling at least through the end of the year.
"There is still uncertainty in the market, and that we try to highlight as well," Chief Financial Officer Lars Sandstrom told Reuters.
Telecoms equipment makers like Ericsson and rival Nokia have been hit by a drop in spending by customers on 5G equipment amid high interest rates and an uncertain economic outlook.
Ericsson's operating profit excluding restructuring charges rose unexpectedly to 4.3 billion crowns ($394 million) in the first quarter from 4.0 billion a year earlier, despite a 15% sales drop. Analysts polled by LSEG had on average forecast a decline in profit to 1.7 billion crowns.
The profit included a one-off gain of 1.9 billion crowns related to the resolution of a commercial dispute.
Ericsson in January predicted markets outside China would keep weakening this year and announced new layoffs in March, having slashed costs and shed thousands of jobs in 2023 as sales slowed after years of high demand for 5G gear.
"There will be more (lay-offs)," Sandstrom said, adding that a "big portion" of Ericsson's full-year restructuring costs of 3-4 billion crowns would be related to job cuts.
The company forecast a gross margin excluding restructuring charges at its Networks division of 42%-44% for the second quarter. In the first quarter, it was 44.3%.
"In the second half, our margins should benefit from improved business mix," it added.
Analysts at Jefferies, with a "buy" recommendation on Ericsson's shares, said its gross margin of 42.7% was well ahead of expectations, helped by the Networks segment.
"While the current sales weakness is a concern, we expect the market to be focused on the strong gross margin trend through the year and stabilizing sales in H2," they said in a note to clients.