Ericsson shares climb as Q1 earnings fuel expectations of a full recovery

on Apr 20, 2018

Ericsson shares surged over 15% Friday, after the mobile equipment maker’s first-quarter results surprised on the upside with a smaller than expected loss. The Swedish firm is amidst a restructure and cost-savings initiatives that have been initiated during 2017 are beginning to bear fruit.

By 1235 BST, Ericsson shares were 16.41% higher at SEK64.68. That’s the highest level for the stock since the summer of 2016.

Earnings details

Ericsson’s Q1 earnings report showed that adjusted for currency fluctuations, sales slid 2% compared with Q1 2017. In addition, the tech firm reported an operating loss of SEK0.3 billion, a much smaller decline than that of SEK11.3 billion in Q1 2017 and also ahead of market expectations.

“We have continued to execute on our focused business strategy creating solutions that help our customers improve their business,” said Börje Ekholm, President and CEO of Ericsson.

“Our efforts to improve efficiency in service delivery and common costs are starting to pay off. The gross margin improved to 36% in the quarter, tracking well towards our Group target of 37-39% by 2020.”

The backdrop to the improved financial performance incudes the mobile equipment manufacturer decision to slash its workforce by over 3,000 between January and March. That means a total of almost 18,000 jobs have been cut from the business since July 2017.

Ericsson focussing on R&D

While the jobs cuts and restructure of the business are ongoing, Ekholm stated the firm continues to invest in R&D to safeguard the future of the Swedish tech firm.

“A cornerstone in our strategy is to invest in R&D for both technology leadership and cost leadership, which will allow us to generate higher gross margins,” the Ericsson CEO said.

He detailed the areas in which R&D investment is continuing:

  • 5G Networks.
  • Cloud-native portfolio and efficiency improvements.
  • Machine intelligence, automation and analytics.