During Q1 2024, Ericsson continued to execute its strategy to strengthen its 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,” explained Börje Ekholm, President and CEO of Ericsson.
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Ericsson’s reported sales decreased organically to SEK 53.3 billion, a 15% YoY decline, due to the Networks’ segment performance. Despite these figures, Ericsson’s net income surged by 66% YoY to SEK 2.6 billion. Moreover, net cash increased by 38% QoQ to SEK 10.8 billion, compared to Q4 2023’s SEK 7.8 billion.
Impressively, the reported gross margin was 42.5%, increasing from the previous quarter’s 39.8%, due to competitive product portfolio, cost actions, improved commercial discipline, as well as increased IPR licensing revenues.
“We will continue to proactively optimize the business, including through strategic cost-saving measures, to ensure Ericsson is best positioned to increase shareholder value,” the PCEO continued.
The company also reportedly delivered SEK 3.7 billion of free cash flow in Q1 2024, benefiting from operational improvements, and lower working capital as the 5G roll-out phase in India concluded.
To improve cost efficiency and streamline operations, further measures were announced in the first quarter of the year, including headcount reductions. “This is a necessary action to position the company for longer-term success,” Ekholm commented.
Market Headwinds and Execution Focus
Ericsson’s network sales decreased organically by 19% YoY as customers continued to be cautious with their investments, but the leading telecom vendor managed to generate a strong gross margin.
In the cloud software and services segment, the company continued to execute its strategy to strengthen delivery performance and display commercial discipline. For example, in March 2024, Ericsson partnered with Umniah to leverage the capabilities of Ericsson’s Cognitive Software portfolio, revolutionizing network performance in Jordan.
In the enterprise segment, sales grew organically overall but declined across the company’s Global Communications Platform, influenced by the loss of a low-margin customer contract in Q4 and the company's strategic decision to scale back operations in certain countries. Regardless, Ericsson stated that it has placed continued focus on leveraging the current business to support the build-out of their Global Network Platform for network APIs.
In building a Global Network Platform for network APIs, Ericsson announced three key partnerships with Verizon, AT&T and Amazon Web Services, as well as a communications API agreement with KDDI. The company is committed to exposing network features through APIs that will support the creation of new differentiated services and will be crucial in the next step of digitalization of enterprise and society.
Additionally, Ericsson’s IPR revenues continued to grow, with a new 5G patent license 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 licensing areas,” Ekholm noted. “The timing of contracts will fluctuate, as we seek to optimize the value of new agreements.”
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A Stronger and More Profitable Ericsson
“Our strategy is aimed at building a stronger and more profitable Ericsson in the long term, with a vision to capture the next major wave of networks innovation with a substantial platform business,” added the PCEO.
At Mobile World Congress in Barcelona, Ericsson showcased industry-leading hardware and software solutions required in order to build the high-performance and programmable networks necessary to digitalize society. “Our industry is shifting from a vertically integrated architecture to a horizontal and cloud-based network architecture—and Ericsson is leading this development,” Ekholm remarked.
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Looking ahead, Ericsson expects a further decline in the 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 normalize.”
If current trends persist, sales are expected to stabilize during the second half of the year, benefiting from recent contract wins and the normalization of customer inventory levels in North America.
“We also remain highly focused on delivering stronger cash flow, based on our operating discipline,” Ekholm mentioned.
As outlined by Ericsson's PCEO, the company's enterprise strategy focuses on harnessing network capabilities to drive telecom industry revenue growth beyond what can be achieved solely through traffic growth. By creating new, differentiated, products and services, “this will support industry investment levels in the longer term.”
On the Middle East and Africa front, Iwan Stella, Vice President and Head of Strategy and Commercial Management at Ericsson Middle East & Africa, echoed the company’s clear ambition to “create networks-as-platforms,” emphasizing that they are “never going to compromise on the performance of [their] networks.”
