Ericsson warns of 'challenging' conditions, but Q2 profits beat forecasts

(Sharecast News) - Swedish telecoms giant Ericsson reported a decline in sales in its second quarter and warned that market conditions would remain "challenging" for the rest of the year, but still managed to beat profit forecasts.

The company, which sells infrastructure and services like 5G network equipment, said it was seeing lower customer investment levels in some markets, but mainly in India, following record investments in 2023.

Sales in the three months to 30 June were 7% lower than last year at 59.8bn Swedish krona (£4.4bn), due to an 11% fall in the Networks division, offsetting stable performances in Cloud Software and Services, and in Enterprise.

One bright spark was the return to growth in North America where network sales increased by 14%.

Despite the overall sales decline, group gross margins improved to 43.1 from 37.4% a year earlier, helped by increased IPR licensing revenues, cos-reduction actions and competitive portfolio offerings, the company said.

This drove gross income 7% higher to SEK25.8bn while adjusted EBITDA rose 14% to SSEK3.23bn, well ahead of the SEK2.7bn consensus esimate.

Meanwhile, free cash flow before M&A improved to SEK7.6bn, from an outflow of SEK5.0bn the year before.

"In Q2, we maintained our leading market position, returned to growth in North America, and delivered strong gross margin expansion and free cash flow," said president and chief executive Börje Ekholm.

"We remained focused on matters in our control, to optimise our business amid a challenging market environment, with industry investment levels unsustainably low."

Ericsson's shares were up 7.3% at kr72.88 by 1022 in Stockholm.