Ericsson reported strong first-quarter 2019 earnings with net sales of USD 5.3 billion, an increase of 7 percent year-over-year, adjusted for constant currency. The company attributed the growth to its 5G business, particularly in North America.
Besides its North American customers, which include Verizon, AT&T, T-Mobile, and Sprint, the company is also working with operators in South Korea to deliver 5G mobility and other services.
While Switzerland has released spectrum allowing Swisscom to offer commercial 5G services, using our equipment, the development in other parts of Europe is considerably slower primarily due to lack of spectrum, poor investment climate and additional uncertainties related to future vendor market access.
Gross margin improved to 38.5 percent (35.9%) Y-o-Y, driven by improvements in segments networks and managed services, and also by the recently signed patent license agreement with OPPO.
Segment networks had a strong quarter with an organic sales growth of 10 percent Y-o-Y, driven by increased investments in North America. Networks gross margin improved to 43.2 percent (40.4%) Y-o-Y, mainly due to higher hardware capacity sales and IPR revenues. During the first quarter, Ericsson announced its intent to acquire the German company Kathrein’s antenna and filters business. The contract is expected to close in the third quarter 2019. This will further expand company’s capabilities in the advanced active and passive antenna domains, which are growing in importance as 5G evolves.
In managed services, sales fell organically by -5 percent due to headwind from contract exits. In the quarter, our operations engine was launched with good response from our customers. Gross margin improved to 17.7 percent (9.1%) Y-o-Y, supported by efficiency gains and customer contract reviews. Excluding a non-recurrent positive effect of SEK 0.7 billion from a customer settlement, the operating margin was 8.6 percent, exceeding the higher range of our financial target for 2020.
President and CEO,
“We continue to take strategic contracts and incur costs for 5G field trials and, in addition, by end of 2019 we expect large-scale deployments of 5G to commence in parts of Asia. Combined, this will gradually impact short-term margins but strengthen our position in the long term. The impact of strategic contracts and 5G field trials was limited in 1Q. The 5G market is gaining momentum and we are well positioned to capture opportunities. We will continue to make substantial investments in R&D, especially in 5G, automation and AI. This is a key part of our focused strategy to strengthen our long-term business and path to reaching our targets for 2020 and 2022”.