Borje Ekholm reveals gloomy outlook for Ericsson

Borje Ekholm, President and CEO of Ericsson, said the telecom network vendor’s near-term outlook remains uncertain.
Ericsson gross margin
Ericsson reported sales of SEK 86 billion (+1 percent) with net income of SEK 6.1 billion (–39 percent) in Q4 2022.

The full year performance of Ericsson was also not encouraging. Ericsson reported sales of SEK 271.5 billion (+3 percent) with net income of SEK 19.1 billion (–17 percent) in 2022.

Ericsson said the quarter was impacted by an IPR agreement resulting in total IPR revenues of SEK 6.0 (2.4) b. and previously announced charges of SEK -4.0 b., including DOJ provision, IoT divestment and Cloud Software and Services contract and portfolio exits.

Borje Ekholm is less confident about the revival of the business performance of Ericsson because of several reasons.

First, mobile operators will continue to sweat assets in response to macroeconomic headwinds.

Second, operators will adjust inventory levels as supply situation eases. These trends started to impact Ericsson’s Networks business in Q4 2022. Ericsson’s Networks business generated SEK 58.6 billion sales in Q4, registering 1 percent growth. Borje Ekholm expects them to continue these trends at least during the first half of 2023.

Borje Ekholm is confident about long-term outlook given 5G’s potential. Ericsson is well positioned to extend leadership in Networks with further market share gains. Ericsson’s expansion into Enterprise will gain speed across Enterprise Wireless and Global Communication Platform.

Ericsson is already prepared for near-term uncertainty. Ericsson expects reduction in customer inventory levels and lower Capex to impact sales during H1.

There are positive developments as well.

Borje Ekholm said he expects good growth from market share wins, albeit not fully offsetting the near-term headwinds. “In the longer-term, Capex is driven by traffic growth. Given near-term macroeconomic headwinds, we expect Enterprise to grow somewhat slower than during 2022,” Borje Ekholm said during the financial result.

Ericsson is betting on Enterprise business, leveraging strength in mobile networks to accelerate business.

Ericsson’s Enterprise strategy has two pillars: First, Enterprise Wireless Solutions business, focused on capturing the multi-billion-dollar enterprise market opportunity for 5G optimized networking and security solutions.

Second, Ericsson, through the Global Communication Platform business, will enable new ways of monetizing 5G by transforming how network features such as speed and latency are globally exposed, consumed and paid for.

“Enterprise is a growth engine for the company, and we continue to fine-tune our portfolio to maximize profitability. We announced the divestment of our loss-making IoT business in Q4. We will invest to strengthen our enterprise go-to-market channel and broaden our enterprise product portfolio,” Borje Ekholm said.

Ericsson is increasing its investments in developing the network APIs that will underpin the long-term growth in Global Communication Platform. “From 2024 and beyond our enterprise business will be a major driver of Ericsson’s long-term growth and profitability, however, these investments will weigh on profitability during 2023,” Borje Ekholm said.