Ericsson Jumps After Profit Boost From Network Upgrades

(Bloomberg) -- Ericsson AB weathered the start of the coronavirus crisis better than expected after phone companies kept spending to support networks strained by the surge in home working and streaming. Its shares rose the most since April.

• The Stockholm-based company on Friday reported second-quarter sales of 55.6 billion kronor ($6.1 billion), compared with the average analyst estimate of 54.8 billion kronor. Its adjusted gross margin was higher than expected, at 38.2%.
• “Despite the difficult environment we delivered a solid result,” said Chief Executive Officer Borje Ekholm in a statement. “Some customers are accelerating their investments while others are temporarily cautious.”

Key Insights

• The numbers confirm the pandemic is revealing shortcomings in global network capacity that are helping prop up demand for Ericsson’s antennas, routers and switching gear.
• Redoubled investments are partly driven by competition between carriers on new fifth-generation mobile networks in some markets, said Chief Financial Officer Carl Mellander
• Ericsson’s position could also be strengthened if more countries follow the U.K. and ban its Chinese rival Huawei Technologies Co. from 5G. Mellander said Ericsson is ready to deliver larger volumes of equipment if Huawei bans spread.
• Ericsson’s profitability will still be held back in the near-term because it is expanding its presence in China, where carriers are building 5G networks set to yield billions of dollars of revenue down the line.

Market Reaction

• Ericsson shares jumped 6.1% after the results. They recently returned to their level before the coronavirus crisis sent stock markets tumbling in March. Sixteen of the 30 analysts tracked by Bloomberg have buy recommendations for the stock, and none of them advise clients to sell.

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• “While the effects of Covid-19 create uncertainties, with current visibility Ericsson sees no reason to adjust 2020 and 2022 full-year targets for the Group,” the company said.
• See more on the results here
• Analyst reaction here

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