Telecom company points to strong 5G portfolio as big reason for increased sales.
Telecommunications company Ericsson recently announced its fourth quarter results, which revealed 13% year-over-year sales (YoY) growth and its gross margin improving to 40.6%. The company attributed a lot of its improvement to sales made in North America, Europe and North East Asia. Meanwhile, Ericsson’s network sales increased by 20% YoY.
“As we navigate through the pandemic, health and well-being of our colleagues, customers and partners is our number one priority,” Ericsson CEO Borje Ekholm said. “Despite the challenges, our people continued to deliver and to serve our customers with very limited disturbances. Our (research and development) investments have continued to drive both technology leadership and cost efficiency, which have led to increased market share and improved financial performance. We are today a leader in 5G with 127 commercial contracts and 79 operating networks around the world.”
Meanwhile, Ericsson’s year-end results also yielded some highlights. The company saw its sales grow by 5% and networks increase 10% in 2020. Ericsson’s gross margin (excluding restructuring charges) improved to 40.6% and it saw a jump in reported operating income.
“Networks sales grew organically by 20%, reporting a gross margin of 43.5% for (the fourth quarter,” Ekholm said. “This reflects continued high activity levels in North America and North East Asia, and also in Europe where we further increased market share. Investing in R&D is fundamental to our strategy. Our growth during 2020 is built on a strong and competitive 5G portfolio.”
Ericsson also saw its Digital Services gross margin grow during the fourth quarter—from 2017 to 2020 the figure jumped from 29% to 42%. Ekholm attributed the improvement to the company’s streamlined portfolio, less critical contracts and an expanding portion of software sales and lower service delivery costs.
“We continue to execute on the turnaround plan and the operating income in (the fourth quarter) is the best quarterly result to date,” he said. “The cloud native 5G portfolio has a high win ratio and significant new customer contracts will start to generate revenues during the next 12 to 18 months. By selective R&D investments to accelerate our growth portfolio, we aim to capture further opportunities.”
Ericsson’s September acquisition of Cradlepoint, a market leader in wireless edge WAN 4G and 5G enterprise solutions, looks to have already paid dividends, according to the company’s fourth quarter report. Ekholm noted the company’s emerging business sales are growing in its enterprise offerings such as its IoT (Internet of Things) offerings, in part because it acquired Cradlepoint.
“Gross margin improved to 33.8% (15.1%) driven by operational leverage from growth and lower cost as a result of the exited Edge Gravity business,” Ekholm said. “Cradlepoint drives new revenues for mobile service providers and strengthens our position in the 5G enterprise market, alongside our existing dedicated networks and IoT portfolio. The underlying business in Cradlepoint develops according to plan.”
Looking ahead, Ekholm noted that Ericsson is headed toward some important contract renewals, which could negatively impact the company’s earnings this year and next. The company remains confident in its patent portfolio’s long-term value, including a strong position in 5G, however.
“We will seek to maximize the net present value of this portfolio, established over many years on the back of R&D investments,” Ekholm said. “The IPR standardization framework, based on FRAND terms, underpins the interoperability of global wireless communications with more than 8 billion mobile subscriptions. Long-term business fundamentals remain strong and we will continue to invest in further strengthening our portfolio and growing our global footprint. While we expect temporary negative impact during 2021 from IPR renewals, Cradlepoint and investments to strengthen our long-term business, we remain fully committed to the 2022 target as a milestone towards the long-term EBITA target of 15%-18%.”
Joe Dyton can be reached at firstname.lastname@example.org.