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Ericsson reports a 9% year-on-year decline in revenues but better margins.

Ericsson Reports Q1

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Light Reading
4/23/2014
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STOCKHOLM -- First quarter highlights:

  • Sales in the quarter were SEK 47.5 (52.0) b. Sales for comparable units, adjusted for currency, decreased -7% YoY and -28% QoQ
  • Sales declined YoY, primarily in North America and Japan but partly offset by China, Middle East and Latin America
  • Business mix in the quarter was mainly driven by mobile broadband capacity projects. With current visibility, key contracts awarded will gradually impact sales and business mix, mainly in the second half of the year.
  • Operating margin improved YoY in all segments to 5.5% (4.0%) mainly driven by mobile broadband capacity sales and lower restructuring charges
  • Operating income amounted to SEK 2.6 (2.1) b.
  • Cash flow from operating activities was SEK 9.4 b. driven by the payment from Samsung related to the new license agreement as well as reduced trade receivables.

    Comments from Hans Vestberg, President and CEO of Ericsson:

    Sales for comparable units, adjusted for currency, declined by -7% year-over-year, with continued negative impact from North America and Japan. All segments showed margin improvements.

    The main reason behind the decline in sales is, as previously communicated, lower revenues from two large mobile broadband coverage projects in North America, which peaked in the first half of 2013, and the impact from reduced activity in Japan. This was partly offset by growth in China, Middle East and Latin America. The decline in sales impacted segment Networks as well as the Global Services network rollout business.

    Our focus on profitability is paying off with gross margin improvement YoY, both including and excluding restructuring. All segments also showed improved operating margins. The business mix in the quarter was predominantly driven by mobile broadband capacity projects. In addition, some of our customers invested more in software to improve network performance and user experience.

    Operating cash flow amounted to SEK 9.4 b., compared to a negative operating cash flow of SEK -3.0 b. in the first quarter last year. The payment from Samsung, related to IPR licensing, as well as lower sales had a positive effect on cash flow. Our continued efforts to reduce working capital through a better order-to-cash process are progressing well.

    North America is currently characterized by operator investments in capacity and quality enhancements. At the same time we continue to strengthen our position in strategic areas. We are pleased to have been named partner to AT&T for their Domain 2.0 initiative which aims to simplify and scale their network utilizing Network Function Virtualization (NFV) and Software-Defined Networking (SDN).

    In region North East Asia we are executing on previously awarded 4G/LTE contracts in mainland China. In addition, we have been awarded important 4G/LTE contracts in Japan and Taiwan.

    In Europe, we have been awarded a five-year contract as part of Vodafone's Project Spring. It includes upgrades and expansions of Vodafone's 2G and 3G networks, and build-out of 4G/LTE along with professional services.

    There is continued demand for our services offering and in the quarter we have won new managed services business in several regions. With seven additional operators announcing trials of the Ericsson Radio Dot System we see strong interest in the solution. The innovative small-cell indoor solution will be commercially available later this year.

    With current visibility, key contracts awarded will gradually impact sales and business mix, mainly in the second half of the year.

    Political unrest prevails in parts of the Middle East and Africa and is still impacting sales. There is also an increased political uncertainty in Russia and the Ukraine. In 2013 Ericsson had SEK 5.9 b. in sales in Russia and Ukraine. The current political uncertainty has not impacted sales in the first quarter.

    In a transforming ICT market, Ericsson continues to evolve through investments both into its core business and in new and targeted areas. Through our technology and services leadership we are well positioned to continue to stay relevant as our customers move to capture new market opportunities.

    Ericsson AB (Nasdaq: ERIC)

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