Business Intelligence (BI)

Ericsson Shares Climb After Sales Decline Less Than Expected, North America Shows Growth

12 July 2024

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Zaker Adham

Summary

Key Points:

  • Ericsson shares hit their highest level since September 2022 before paring gains.
  • Net sales decreased by 7% year-on-year to 59.8 billion Swedish kronor ($5.68 billion) in Q2, better than the 58.3 billion kronor forecasted by analysts.
  • CEO Börje Ekholm highlighted the company's focus on optimizing business amid a challenging market environment and the return to growth in North America.

Ericsson shares surged on Friday, reaching their highest level in nearly two years, after reporting a smaller-than-expected decline in second-quarter revenue.

Net sales dropped by 7% year-on-year to 59.8 billion Swedish kronor ($5.68 billion) in the second quarter, surpassing the 58.3 billion kronor forecast in an LSEG analyst poll.

Despite a net loss of 11 billion kronor, down from a 2.6 billion profit in the first quarter of the year, shares rose over 8% in early trading before settling at a 2.5% increase by midday London time.

Ericsson CEO Börje Ekholm emphasized the company's growth in North America, where sales increased by 14%, alongside an improvement in gross margins.

“We focused on what we can control to optimize our business in a challenging market environment with unsustainably low industry investment levels,” Ekholm stated.

Transitioning from its historical focus on telephone operations and mobile phones, Ericsson now specializes in 5G network infrastructure and cloud software. However, like its competitor Nokia, Ericsson has faced challenges due to lower-than-expected 5G investment.

A significant achievement for Ericsson was securing a major contract with AT&T last year to develop its open radio access network (Open RAN) in the U.S., outperforming Nokia.

India has also been identified as a key growth market for Ericsson. Ekholm noted in a January CNBC interview that India's rapid 5G build-out was now stabilizing.

In Friday’s results, Ekholm reiterated that market conditions are expected to remain challenging in the second half of the year due to slowing investments in India. However, sales are projected to benefit from contract deliveries in North America.