Telecom equipment maker Ericsson on Tuesday reported adjusted first-quarter profit that beat expectations and said sales could stabilize within the second half of the yr despite weak demand for 5G equipment.
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Ericsson said on Tuesday it expects sales to stabilize within the second half of 2024 amid signs some customers need to spend more, because the telecom equipment maker beat first-quarter profit forecasts because of a one-off gain.
The Swedish group pointed to recent contract wins and the normalization of customer inventories in North America.
Its shares rose 6% in early trading, reaching levels last seen initially of the month.
However, Ericsson also predicted that the marketplace for 5G radio access networks (RAN) would proceed to say no at the least until the tip of the yr.
“There is still uncertainty in the market and that is what we are trying to highlight,” Chief Financial Officer Lars Sandstrom told Reuters.
Telecommunications equipment manufacturers similar to Ericsson and rivals Nokia have been hit by a decline in customer spending on 5G devices attributable to high rates of interest and an uncertain economic outlook.
Ericsson’s operating profit excluding restructuring costs unexpectedly rose to 4.3 billion crowns ($394 million) in the primary quarter from 4.0 billion a yr earlier, despite a 15% drop in sales. Analysts surveyed by LSEG had on average forecast a decline in profits to 1.7 billion crowns.
The profit included a one-time gain of 1.9 billion crowns related to the settlement of a industrial dispute.
Ericsson predicted in January that markets outside China would proceed to weaken this yr and announced latest layoffs in March after the corporate cut costs and cut hundreds of jobs in 2023 as sales slowed after years of high demand for 5G devices declined.
“There will be more (layoffs),” Sandstrom said, adding that a “large portion” of Ericsson’s full-year restructuring costs of three billion to 4 billion crowns can be tied to job cuts.
The company forecast second-quarter gross margin excluding restructuring costs for its network division of 42% to 44%. In the primary quarter it was 44.3%.
“In the second half of the year, our margins should benefit from an improved business mix,” it said.
Analysts at Jefferies gave a “buy” rating on Ericsson shares, saying gross margin of 42.7% was well above expectations, supported by the network segment.
“While current sales weakness is a concern, we expect the market to focus on strong gross margin development throughout the year and stabilization of sales in the second half of the year,” it said in a note to clients.
