By Dominic Chopping
STOCKHOLM–Sweden’s Ericsson is due to report third-quarter earnings on Tuesday. Here’s what to watch:
NET PROFIT: The telecom-equipment maker is expected to post a net profit of 1.26 billion Swedish kronor ($114.1 million), according to a consensus provided by FactSet, compared with SEK5.36 billion last year. The company last week announced a non-cash impairment of SEK32 billion in the third quarter relating to the impairment of goodwill at its Vonage business. At the same time, it pre-announced some earnings figures, saying third-quarter earnings before interest, tax and amortization were SEK4.7 billion, from SEK7.7 billion in the same period last year.
SALES: Ericsson has also already announced a 5.2% drop in sales to SEK64.5 billion from SEK68.04 billion a year earlier.
WHAT TO WATCH:
NETWORKS: Ericsson has said sales in its key Networks unit fell to SEK41.5 billion in the third quarter from SEK48.1 billion, as organic sales in North America fell 60% on the year, with operators reducing their spending and adjusting inventories. The sharp decline in North America was partly offset by strong sales in India, it said. In Tuesday’s report, eyes will be on the strength of other markets and on any comments relating to a demand recovery in the U.S. and inventory workdown.
MARGINS: Ericsson has announced a third-quarter group Ebita margin of 7.3% from 11.3%, while the Ebita margin in its Networks unit was 12.6%, down from 20.0%. Investors will be watching for any fourth-quarter margin guidance.
OUTLOOK: Ericsson has previously announced that it expects to reach the low end of its targeted 15% to 18% Ebita margin range by 2024. It expects the global radio access network equipment market to be stable at 0% in 2023, with North America expected to decline by 13%, Europe flat at 0% and China to decline by 4%. Citi analyst Andrew Gardiner said in a note that with U.S weakness driving a decline in the global RAN market in 2023, he had expected a return to low growth in 2024. “Given continued pressure on telcos from a higher-for-longer interest rate environment, we fear capital spending, and therefore equipment revenue, to once again be a key lever in telco cash generation prospects.” Citi now forecasts the RAN market to decline by 3% in both 2023 and 2024.
Write to Dominic Chopping at [email protected]
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