Ericsson Reports Quarterly Results
Friday, July 17, 2020 | Comments

Ericsson reported second quarterly results with flat organic sales and an improved gross margin year over year to 38.2% (36.7%), including negative effects from strategic contracts. Free cash flow before mergers and acquisitions (M&A) also improved.

“While the effects of Covid-19 create uncertainties, with current visibility we maintain the full-year targets for the group,” said Börje Ekholm, president and CEO of Ericsson.

Networks grew by 4% organically and the gross margin was 40.5% (41.4%), absorbing a larger share of strategic contracts including 5G volumes in mainland China where the firm also took an inventory write-down.

Digital services continued improvements in the underlying business, and a Q2 gross margin reached 43.6% (37.1%), supported by increased software sales. Sales is being impacted by the declining legacy portfolio and COVID-19-related market uncertainty, expected to continue throughout the year.

“There is however a strong demand for our cloud-native and 5G portfolio, and we have recorded several important tier 1 customer wins in 5G core that will generate revenues in 2021 and beyond,” Ekholm said. “Encouraged by the success of our offering, we have decided to accelerate R&D (research and development) investments.”

Ericsson’s patent licensing business continues to perform well. Licensing agreements are often multiyear and term based, and renewals normally require negotiations, particularly in conjunction with introducing new standards such as 5G. Next year, certain agreements are up for renewal and royalty payments can be temporarily affected. The inclusion of 5G patents is expected to strengthen Ericsson’s intellectual property rights (IPR) business further, he said.

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