Ericsson executives diverted scrutiny of its second quarter earnings beyond headline figures which showed revenue remained broadly flat year-on-year and a steep widening in net loss.
Helena Norrman, SVP and CMO at the company (pictured), told Mobile World Live (MWL) those metrics do not reflect the underlying improvements made by the vendor during the quarter in terms of execution of its strategy, steadying the financial ship and building momentum with customers around its product portfolio.
The executive argued Ericsson is generating traction “for 4G, on the road to 5G” and a new portfolio of virtualised digital services. The vendor is also on a solid footing in terms of its strategy to invest in R&D to achieve technology leadership, an approach Norrman said is strengthening the overall business and also beginning to bear fruit for its Networks division.
Combined with a “very strong focus on efficiency and cost reduction”, the company is well placed with a “competitive portfolio”, the CMO claimed.
Ericsson’s approach is paying off in terms of “stronger gross margin” and operating margin, Norrman noted. The former metric increased from 29.1 per cent in Q2 2017 to 34.8 per cent in the recent quarter; the latter grew from -1.1 per cent to 0.3 per cent.
“We even see small sales growth in Networks,” Norrman said, pointing to a 2 per cent increase in the business unit’s revenue in the recent period.
Norrman’s bid to drill down to Ericsson’s underlying performance comes after the vendor reported a marginal 1 per cent drop in revenue year-on-year to SEK49.8 billion ($5.6 billion), and a higher net loss of SEK1.8 billion (compared with SEK500 million in Q2 2017).
However, the company overturned an operating loss of SEK500 million in Q2 2017 with income of SEK200 million in the recent quarter, with an associated turnaround in operating margin (0.3 per cent in Q2 2018 versus a negative 1.1 per cent in the 2017 quarter).
In its earnings statement, CEO Borje Ekholm (pictured, right) said the vendor had now completed a cost reduction programme initiated in Q2 2017 which aimed to slash expenditure by SEK10 billion. A total of 20,500 jobs were cut as part of the programme, more than 2,000 of which occurred in the recent quarter.
Ekholm pointed to “strengthened momentum for 5G in the quarter” stating it is “clear that our 5G-ready portfolio is attractive and competitive”. The CEO was also buoyed by the slight rise in Networks sales during the quarter, noting the business generated “good market traction” with North America particularly fruitful as “all major operators are preparing for 5G”.
The vendor’s future balance sheet will be marginally impacted by recent shifts in its business units. Norrman told MWL the sale of a majority stake in its Media Solutions unit to One Equity Partners will “of course” have an impact on the company’s financials. The transaction is expected to close in the current quarter.
Soon after agreeing the media business move, Ericsson also sold its domestic Field Services division, a move Norrman said is in line with its strategic focus on “R&D investment, technology leadership and cost” efficiencies.
Separately, the company also announced a new boss of its Digital Services business unit. Jan Karlsson has been given the job fulltime after acting in this position since February 1, 2018.