Ericsson has announced financial results for the first quarter (Q1) of 2024. The organic sales for the company declined organically by 14 per cent year-over-year (YoY), due to a 19 per cent decline in networks. The gross income excluding restructuring charges decreased to SEK 22.8 (24.9) billion as lower sales were partly offset by an improvement in gross margin. Meanwhile, the reported gross income stood at SEK 22.7 (24.2) billion.
The gross margin excluding restructuring charges improved to 42.7 per cent supported by a competitive product portfolio, cost actions, improved commercial discipline, as well as increased intellectual property rights (IPR) licencing revenues. Reported gross margin was 42.5 per cent. Earnings before interest, taxes, and amortisation (EBITA) excluding restructuring charges amounted to SEK 5.1 (4.8) billion with a margin of 9.6 per cent, which included a one-time gain of SEK 1.9 billion. Additionally, the reported EBITA was SEK 4.9 (3.8) billion.
Further, the net income was reported as SEK 2.6 (1.6) billion and the EPS diluted was reported as SEK 0.77 (0.45). Free cash flow before mergers and acquisition (M&A) was SEK 3.7 (8.0) billion reflecting improved management of working capital. Net cash on March 31, 2024, was SEK 10.8 billion compared with SEK 7.8 billion on December 31, 2023.
Commenting on the results, Börje Ekholm, president and chief executive officer, Ericsson, said, “In Q1, we continued to execute on our strategy to strengthen our leadership in mobile networks, drive a focused expansion in enterprise, and pursue cultural transformation. We maintained our leading market position, but as expected our customers continued to exercise caution with their investments. Against this tough market backdrop, we delivered solid expansion in gross margins. This underscores the competitiveness of our solutions, our commercial discipline, and our actions on costs. We will continue to proactively optimise the business, including through strategic cost-saving measures, to ensure Ericsson is best positioned to increase shareholder value.
He added, “While organic sales declined by 14 per cent, we reached a gross margin of 42.7 per cent, generated EBITA of SEK 5.1 billion and a 9.6 per cent EBITA margin. Networks sales decreased organically by 19 per cent YoY as our customers continued to be cautious with their investments. Despite this, we generated a strong gross margin of 44.3 per cent – a testament to our technology leadership, our competitive product portfolio, and the strategic actions we are taking, including on costs. Additionally, in cloud software and services, we continued to execute on our strategy to strengthen delivery performance and commercial discipline. We delivered a gross margin of 37.4 per cent and our EBITA margin improved YoY for a fifth consecutive quarter. The rolling four quarter EBITA margin was 3 per cent. In enterprise, sales grew organically overall but declined in global communications platform, impacted by a low-margin customer contract loss in Q4 and our decision to reduce our operations in some countries, with the impact expected to continue throughout the year. We continue to focus on leveraging the current business to support the build-out of our global network platform for network application programming interfaces (APIs). Our IPR revenues continued to grow, with a new 5G patent licence agreement with a handset manufacturer. We are confident of delivering further growth in IPR revenues, benefiting from additional 5G agreements and an expansion into additional licencing areas. The timing of contracts will fluctuate, as we seek to optimise the value of new agreements. We delivered SEK 3.7 billion of free cash flow in Q1, benefiting from our operational improvements, and lower working capital as we concluded an intense 5G roll-out phase in India. We announced further measures in the quarter to improve our cost efficiency and streamline operations, including headcount reductions. This is a necessary action to position the company for longer-term success. In March, our independent monitor certified our compliance program. This is an important step to conclude our plea agreement. Our focus on culture and integrity will continue.”
Ekholm added, “We expect a further decline in the radio access network (RAN) market, at least through the end of this year, as customers remain cautious with their investments and the pace of investment in India continues to normalise. Dell’Oro estimates the global RAN equipment market will decline by 4 per cent in 2024, which may prove optimistic. If current trends persist, we expect our sales to stabilise during the second half (H2) of the year, benefiting from recent contract wins and the normalization of customer inventory levels in North America. In Q2, we expect networks gross margin excluding restructuring charges to be in the range of 42-44 per cent. In H2, our margins should benefit from improved business mix. We also remain highly focused on delivering stronger cash flow, based on our operating discipline. Our enterprise strategy aims to leverage network capabilities to increase telecoms industry revenue growth above the level that traffic growth alone could deliver.”
He concluded, “We are creating new, differentiated, products and services, supporting our customers in this transformation. In turn, this will support industry investment levels in the longer term. While near-term dynamics are challenging, we remain fully committed to our long-term targets, and we continue to be focused on increasing shareholder value.”
