Ericsson Posts Increased Operating Income, Plans Accelerated Investments in Digital Services

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Ericsson, a global technology company with operations in Nigeria, has released its second quarter results 2020, recording increased operating income, excluding restructuring charges, to reach 8.2 per cent

Its gross margin excluding restructuring charges improved to 38.2 per cent, including the earlier communicated inventory write-down related to Mainland China, which equals to 1.6 percentage points.
Networks sales increased by four per cent Year-on-Year (YoY).

Networks operating margin excluding restructuring charges was 14.1 per cent, impacted by strategic contracts and the inventory write-down, partly compensated by operational leverage and a favorable business mix.
The company however reported a decline in sales of 5 per cent.

Ericsson explained that the Covid-19 pandemic had a limited impact on operating income and cash flow in the quarter.
The financial report further anticipated that the technology company with speciality in network operations, would maintain its financial targets for 2020 to 2022. However, it stated that it would accelerate its Research and Development (R&D) investments in digital services, to capture additional business opportunities.

Analysing the report, the President and CEO of Ericsson, Börje Ekholm, said the human toll caused by COVID-19, directly and indirectly through a weak economy, became increasingly clear.

According to him, “We continue to put safety of our people as first priority, and more than 80 per cent of our employees are currently working from home. Despite the difficult environment we delivered a solid result. Q2 organic sales were flat and gross margin improved to 38.2 per cent YoY, including negative effects from strategic contracts. While the effects of COVID-19 create uncertainties, with current visibility, we maintained the full-year targets for the group.

“Networks grew by four per cent organically and the gross margin was 40.5 per cent absorbing a larger share of strategic contracts including 5G volumes in Mainland China where we also took an inventory write-down. “The strengthened market position in Mainland China is strategically important as this market is expected to be a driver of critical future requirements and provide us with important scale. The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2.”

Ekholm further said: “Investments in R&D have established us as a leader in 5G, with proven performance and cost of ownership benefits for our customers. We have continued to increase our market share in several markets by leveraging our competitive product portfolio. Profitability in earlier awarded strategic contracts has improved according to plan. We consider strategic contracts to be a natural part of the business and we will stop our forward looking commentary unless there is an extraordinary impact.”