Ericsson’s core earnings climb in Q2 on the back of higher demand for telecom equipment

Ericsson (STO: ERIC-B) said on Friday that its core earnings in the second quarter came in stronger than the market expectations. The company attributed its hawkish performance to a greater demand for high-margin, telecom equipment in the recent quarter. The upbeat report also saw the Swedish company maintaining its financial outlook for 2020 and 2022. Ericsson expanded its workforce by 705 employees in Q2.

Shares of the company opened more than 5% up on Friday and jumped another 3.5% in the next hours. At £8.55 per share, Ericsson is roughly 15% up year to date in the stock market after recovering from a low of £5.35 per share in March when the impact of Coronavirus was at its peak. Learn more about stocks and the stock market.

Ericsson has secured 99 commercial contracts for 5G networks

Despite the Coronavirus uncertainty, telecom companies from across the globe have continued their plans of upgrading to 5G networks in recent months. Consequently, Ericsson boasted to have secured 99 commercial contracts so far.

The British government announced a surprising decision of banning China’s Huawei from its countrywide 5G network earlier this week that further opened ground for Nokia and Ericsson to expand their footprint in the United Kingdom.

A few of Ericsson’s contracts, however, were associated with a cost. The company inked agreements with all three of the largest Chinese telecom operators; China Telecom, China Mobile, and China Unicom, that resulted in a 1.6% hit to gross margins due to an £87 million of write-down in product inventory.

Ericsson’s revenue grows 1% on a year over year basis

Despite the hit, the gross margins climbed from 36.7% in the comparable quarter of last year to 38.2% in the recently ended Q2. At £395.81 million, Ericsson’s operating earnings on an adjusted basis in the second quarter came in stronger than the year-ago figure of £340 million. According to Refinitiv, experts had forecast the company to print £300 million in quarterly adjusted operating earnings.

On the revenue front, the company posted a 1% year over year growth to £4.91 billion in the second quarter. Ericsson generated 4% higher sales from mainstay network business in Q2. Its digital services unit, however, took a hit to sales in recent months due to COVID-19.

Ericsson’s performance in the stock market was slightly upbeat in 2019 with an annual gain of about 8%. At the time of writing, the Swedish multinational networking and telecommunications company is valued at £28.71 billion and has a price to earnings ratio of 156.21.