Ericsson’s overall sales for Q4 2018 increased by 10% YoY to SEK 63.8 billion (US$7.06 billion), while sales adjusted for comparable units and currency increased by 4%. Gross margin rose to 25.7% compared to 21.6% a year earlier. Gross margin, excluding restructuring charges and other costs related to revised BSS strategy, improved to 36.3%, supported by cost reductions, the ramp-up of Ericsson Radio System (ERS) and the contract review in Managed Services.
Börje Ekholm, President and CEO of Ericsson, stated:
“Our focused strategy has yielded clear results. Ericsson is today a stronger company. Increased investments in R&D for future growth, managed services contract reviews, combined with efficient cost control have proven to be successful, with improved competitiveness and profitability as a result. As the industry moves to 5G and IoT, we will now take the next step, focusing on profitable growth in a selective and disciplined way. Sales have gradually improved during 2018, resulting in full-year organic sales growth for the first time since 2013. This is partly due to an improved market, but also driven by market share gains in Networks as a result of a more competitive radio product portfolio. ”
Some highlights:
- Networks sales adjusted for comparable units and currency grew by 6% YoY. The company notes high business activity across multiple regions, including a recovering RAN market as well as strong performance in the product portfolio. Growth was partly due to a higher than anticipated activity level in North America driven by increased 5G demand among the US operators. Networks gross margin improved to 41% (35%) YoY, mainly due to improved hardware margins driven by the successful shift to Ericsson Radio System (ERS). Strategic contracts and 5G field trials had a negative impact on operating margin in the quarter. R&D investments continued to grow in the quarter, but are now expected to flatten out.
- In Managed Services, gross margin improved to 12% (-5%) YoY, supported by efficiency gains and customer contract reviews. We have now addressed all 42 targeted contracts, resulting in an annualized profit improvement of SEK 0.9 b.
- Digital Services sales adjusted for comparable units and currency grew by 5% YoY. Digital Services operating income, excluding restructuring charges and costs related to revised BSS strategy, was SEK -0.6 b.
- Managed Services operating margin excluding restructuring charges increased to 5.2% (-13.0%). The review of all 42 low-performing customer contracts has been completed.
- Ericsson also noted that it continues to cooperate with an investigation into its compliance with the U.S. Foreign Corrupt Practices Act (FCPA).
