Ericsson Reports 5% Drop in Q3 2023 Revenue, Networks Business Impacted by North American Slowdown

Telecom equipment giant Ericsson has revealed a 5 percent dip in revenue, totaling SEK 64.5 billion during the third quarter of 2023, compared to SEK 68 billion in the same period last year.
Ericsson CEO Borje Ekholm on new brandThe breakdown of revenue for Q3 2023 shows SEK 41.5 billion (down 14 percent) from the Networks business, SEK 15.6 billion (up 10 percent) from Cloud Software and Services, and SEK 6.7 billion (up 34 percent) from the Enterprise business.

United States remains the largest telecom market for Ericsson, constituting 31 percent of total sales, followed by India at 15 percent, China at 4 percent, United Kingdom at 4 percent, and Japan at 3 percent.

Looking ahead to Q4, Ericsson anticipates similar market trends as Q3, with an expected increase in cost-out impact. The company forecasts a group Q4 EBITA margin of approximately 10 percent. The Q3 performance was in line with guidance, with an EBITA margin of 7.3 percent and an EBITA of SEK 4.7 billion.

Ericsson cited a 16 percent decline in sales from its Networks business, primarily driven by a substantial 60 percent sales drop in North America. This drop was attributed to operators reducing their rollout pace and inventory levels. Conversely, sales in the market area of South East Asia, Oceania, and India doubled due to market share gains in India, coupled with a rapid deployment pace.

Notably, Ericsson’s Networks business nearly doubled its sales in the South East Asia, Oceania, and India market area. However, it experienced a decline in three market areas, particularly North America, where customers have lowered their rollout pace and reduced inventory levels following substantial investments in 2021 and 2022.

Ericsson, which competes with Huawei and Nokia, has revealed that the number of employees on September 30, 2023, was 101,351 compared with 103,890 on June 30, 2023 and 104,931 on Mar 31, 2023.

Ericsson says its gross income and gross margin were impacted by lower sales and gross margin in Networks as a result of reduction in Capex spend by several operators and a business mix shift from front-runner markets to large deployments in other geographies.

Ericsson’s CEO has expressed concerns regarding the persisting uncertainty affecting the Mobile Networks business, stating that the unpredictability is expected to endure into the year 2024.

The global mobile networks market has remained relatively flat over the past two decades, subject to cyclical patterns, a trend anticipated to persist. However, the rapid growth of mobile data, catalyzed by emerging use cases, remains a fundamental driver for the market’s eventual recovery to a more stable level.

The ongoing 5G cycle is still in its early stages, with 75 percent of radio base station sites, excluding China, yet to be updated with 5G mid-band technology. Ericsson believes that competitive dynamics in customer markets often prompt sharp increases in investments when the market turns, and early signs of market improvement in some 5G regions are already being observed.

In terms of regional sales performance:

South East Asia, Oceania, and India: Sales surged by an impressive 74 percent YoY, primarily propelled by significant 5G market share gains in India.

North America: Sales witnessed a stark decline of -51 percent YoY. This decline was largely attributed to a 60 percent drop in Networks sales, a consequence of reduced customer inventory levels and a slower rollout pace following substantial investments made in 2021 and 2022.

Europe and Latin America: Sales in both Europe and Latin America experienced a -6 percent YoY dip, primarily due to high investment levels in 2022. Europe was additionally impacted by a decline in managed services due to contract descoping.

North East Asia: Sales declined by -2 percent YoY, influenced by reduced investments in various markets following heightened 5G investments in 2022.

Middle East and Africa: Sales increased by a notable 10 percent, primarily driven by the next wave of 5G investments in several Middle Eastern countries.