Ericsson’s underlying business fundamentals remain strong. With growth in data in general and with working from home as the new normal in many countries, good connectivity is more important than ever.
The company sees strong underlying customer momentum in the Digital Services segment and it reports being confident about its offering and market position. In addition, leading operators have awarded Ericsson several 5G Core contracts, which are expected to start generating material revenues from 2021.
The massive disruption caused by COVID-19 has demonstrated the criticality of the network in today’s society and Ericsson notes it is currently working closely with its customers to keep their networks running. During this period, supply and service delivery has worked with limited interruption.
Ericsson expects the telecommunications industry to show resilience throughout the pandemic and that it is well-positioned with a competitive 5G product offering and cost structure.
First quarter highlights
- Sales were SEK 49.8 (48.9) b. A decline by -2% adjusted for comparable units and currency.
- The COVID-19 pandemic had limited impact on operating income and cash flow in the quarter.
- Gross margin excluding restructuring charges improved to 40.4% (38.5%). Gross margin improved QoQ in all segments.
- Operating income excluding restructuring charges was SEK 4.6 b. (9.3% operating margin). Q1 2019 operating income excluding restructuring charges and items affecting comparability was SEK 3.5 b. (7.2% operating margin).
- Networks sales adjusted for comparable units and currency were flat YoY and operating margin improved to 16.6% (16.3%).
- Digital Services operating income was SEK -1.4 (-1.8) b. Gross margin improved driven mainly by higher software sales. Sales adjusted for comparable units and currency declined by -9% due to lower services and legacy hardware sales, and negative impact from COVID-19.
- Net income was SEK 2.3 (2.4) b.
- Free cash flow before M&A was SEK 2.3 (3.5) b. further strengthening the net cash position to SEK 38.4 b. from SEK 34.5 b. in Q4 2019.
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