Ericsson Takes Sales Hit in Q4 Due to Moribund Merger

Ericsson’s fourth quarter sales came in lower than expectations, according to CEO Börje Ekholm, due to the frostbite on the T-Mobile/Sprint merger. 

“We have tried to make Ericsson less exposed to our geographic mix and mix between markets, and mix between technologies in that sense, and business segments,” Ekholm said. “I think, when you look at the fourth quarter, you see an unusually low North American share. And we still have sequentially a strong gross margin, so I think it indicates that we have a much less geographic mix or business mix exposure than we’ve ever had in the past. That’s what we are going to continue to work on.”

Last fall, Ericsson acquired Kathrein’s antenna and filter technology division but were negatively affected by the fact they didn’t have the permits to operate in the factory. Choosing safety first, they shut the production down early on in the quarter.  

“We will always ensure the safety of our—of the people working for us,” he said. “So for us, we did not want to operate the facility without fire permits. So that’s one effect we had in Q4,” he said.

Ericsson expects continued losses from that sector in 2020 while it incorporates Kathrein into the company hoping to come back with a bigger 5G antenna product offering later in the year

Highlights included:

• Sales were $6.94 billion. Sales growth was 1 percent adjusted for comparable units and currency. A reduction in North America was compensated by growth in other markets, primarily in the Middle East and North East Asia. Reported sales grew by 4 percent.
• Operating income improved to $680 million, corresponding to an operating margin of 9.7 percent excluding restructuring charges. Reported operating income was $640 million.
• Gross margin was 37.1 percent excluding restructuring charges. Reported gross margin was 36.8 percent.
• Networks gross margin excluding restructuring charges was 41.1 percent. Operating margin excluding restructuring charges was 14.5 percent following the addition of the Kathrein business and investments in R&D, digitalization, compliance and security.
• Net income was SEK 4.5 (-6.5) b.
• Free cash flow excluding M&A was SEK -1.9 (3.0) b. including payments of SEK 10.1 b. related to the resolution of the US SEC and DOJ investigations. Net cash decreased to SEK 34.5 (35.9) b.