Ericsson aims for long-term margin jump, shares fall

Sweden’s Ericsson set some new goals and maintained its 2022 operating margin target after the country’s telecoms regulator halted 5G spectrum auctions, driving down the company’s shares in early trade on Tuesday.

The telecom equipment maker, which holds its capital markets day for investors on Tuesday, has benefited from the global deployment of 5G technology as diplomatic pressure from the United States has eroded market leader Huawei’s dominance in regions such as Europe.

Late on Monday, Sweden’s telecoms regulator halted 5G spectrum auctions after a court suspended parts of its decision that had excluded Chinese telecom equipment maker Huawei from 5G networks.

Ericsson shares fell 3.8% in early trade.

The company maintained its 2022 earnings before interest and taxes (EBIT) target of 12%-14%, excluding charges, and boosted its margin forecast from its networks business as telecom operators across the world upgrade to 5G technology.

It also said it was targeting an operating margin – earnings before interest, tax, depreciation and amortisation (EBITA) – excluding restructuring charges of between 15% and 18% beyond 2022.

For networks, the 2022 operating margin target was raised to 16%-18% from 15%-17%, but Ericsson reduced its margin target for its digital services business to 4%-7% from 10%-12% in 2022.

It set no targets for 2021.

The company, which had an operating margin (EBIT) of 11.1% for the January-September period – on track to reach its previous margin target of at least 10% in 2020 – also set a new target of long-term free cash-flow of 9% to 12% of sales.

Cevian Capital, one of Ericsson’s biggest owners with 5.45% of shares, said the new long-term margin goal showed the company’s potential.

“Ericsson should be able to reach the higher part of the range in 2024 at the latest,” it said.

But Citi analysts said “the lack of upgrades might disappoint some”.

In contrast to Nordic rival Nokia, Ericsson has won contracts from all three major operators in China to supply radio equipment for 5G networks. Reuters