Ericsson has unexpectedly reported a Q2 operating profit, boosted by growing sales in North America, and has said it is increasingly confident of meeting its longer-term targets.
Ericsson reported an operating profit of 0.2 billion crowns (€19.8 million), excluding restructuring charges of 2 billion crowns. The Swedish firm had been in the red since the third quarter of 2016 and its return to profit sent its shares up 10 per cent.
Börje Ekholm, President and CEO of Ericsson, said in a company statement: “We continue to execute on our focused business strategy and are tracking well towards our 2020 target of an operating margin1) of at least 10%. The investments in technology leadership have resulted in increased gross margin) to 37% (31%) and growth in segment Networks.
Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access, represent the first business cases for 5G. We will continue to invest in securing leadership in 5G. This includes further investments in R&D, to solidify our complete 5G portfolio, and investments in field trials. We also intend to selectively capture new business opportunities, through our 5G-ready 4G portfolio, to extend our footprint as operators prepare for 5G. We provide solutions for all frequency bands for 5G, which strengthens our global competitiveness.
We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G. Networks gross margin) improved to 40% (36%). Digital Services is tracking towards a turnaround and gross margin1) improved to 43% (36%) YoY, and was stable QoQ. However, while losses decreased both YoY and QoQ, we still have a lot of work to do. The top priority is to turn around performance in the segment, but we are in parallel accelerating investments to make the portfolio 5G ready and cloud native. In Managed Services, gross margin1) improved to 14% (2%) supported by continued efficiency gains and customer contract reviews, resulting in a positive operating income. We have also on-boarded several new contracts in the quarter.
In segment Emerging Business and Other, we invest in strategic future growth areas such as Internet of Things (IoT). We see increasing momentum with several important customer wins with our connectivity platform in the quarter. However, sales are still low. Our media business generated a loss of SEK -0.4 b. in the quarter. We expect to close the announced divestment of Media Solutions, recently renamed MediaKind, by the end of the third quarter.”