Ericsson CEO Borje Ekholm said the telecom network and software supplier is expecting tough market conditions during 2023 with poor visibility.
Ericsson said organic sales were unchanged at SEK 62.6 billion during the first quarter of 2023. Ericsson has generated sales of SEK 42.5 billion from Networks, SEK 13.4 billion from Cloud Software and Services and SEK 6 billion from Enterprise business units in Q1 2023.
United States (37 percent of total sales), India (11 percent), the Philippines (5 percent), Japan (3 percent) and the United Kingdom (3 percent) are the top five telecom markets for Ericsson in the first quarter of 2023. Interestingly, China does not feature in the top five telecom markets for the mobile network supplier.
Ericsson has lost some business in the US, while it significantly added business in China thanks to 5G roll out by Reliance Jio and Bharti Airtel. Ericsson has also enhanced sales in the Philippines that now contributes 5 percent of total sales vs 1 percent in Q1 2022, thanks to 5G network expansion.
Ericsson said it expects its telecom operator customers to remain cautious with Capex investments and they will adjust inventories in Q2. “We expect this dynamic to largely be offset by growth from large roll-out projects which will be dilutive to gross margin in the short term,” Borje Ekholm said.
Ericsson’s sales from Mobile Networks, its largest business segment, fell 2 percent to SEK 42.5 billion in Q1, primarily driven by a 30 percent sales drop in North America with operators adjusting their inventories as well as reducing their Capex spend.
Revenue from Ericsson’s Mobile Networks business in market area South East Asia, Oceania and India increased by 184 percent, primarily as a result of market share gains in India as well as timing of project milestones in the Philippines and Malaysia.
Ericsson has indicated that there will be uncertainty in 2023 with lower investment activities in several markets and some customers guiding for lower Capex in light of macroeconomic headwinds. Ericsson’s Mobile Networks business sales in Q2 are expected to be in line with Q1.
Customers in early 5G markets have slowed the deployment pace. Some customers have lowered the elevated inventory levels built up in a tight supply environment. This inventory adjustment will be mostly completed during Q2 but may spill into Q3.
Significant growth from large roll-out projects did not fully offset the sales impact from early 5G markets. The increased share of large roll-out projects pressured the margin in Networks.