Ericsson swings to profit as savings kick in; shares jump

Ericsson’s shares have gained more than 36 percent in the year to date. Above, the company logo fronts Ericsson’s headquarters in Stockholm. (Reuters)
Updated 18 July 2018
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Ericsson swings to profit as savings kick in; shares jump

  • The Swedish mobile telecom gear maker has met an industry-wide downturn and mounting losses by sweeping cost cuts
  • Bolstering investor optimism are expectations that Ericsson is on the cusp of a new cycle of network upgrades

STOCKHOLM: Mobile telecom equipment maker Ericsson unexpectedly swung to a modest operating profit in the second quarter, boosted by growing sales in North America and said it was increasingly confident of meeting its longer-term targets.
The Swedish mobile telecom gear maker has met an industry-wide downturn and mounting losses by sweeping cost cuts, clearing out most of its top management and setting a strategy to focus on profitability over growth.
It had been in the red since the third quarter of 2016 and its return to profit sent its shares up 10 percent by 0816 GMT. “A trend of good execution (is) starting to emerge,” UBS analysts said of the latest results.
Bolstering investor optimism are expectations that Ericsson is on the cusp of a new cycle of network upgrades as demand for next-generation 5G gear kicks in later this year or early in 2019, starting in the United States.
Its shares have gained more than 36 percent in the year to date, buoyed by progress toward meeting its 2020 financial targets and hopes for a 5G-led industry growth cycle.
Marking its second consecutive quarter of substantial progress toward hitting its 2020 financial goals, the Swedish firm reported an operating profit of 0.2 billion crowns ($23 million), excluding restructuring charges of 2.0 billion crowns.
The operating profit compared to a 0.5 billion loss in the year earlier quarter. Analysts, on average, had forecast an 0.1 billion loss for the second quarter in a Reuters poll.
“We have good market traction in Networks, with a sales growth of 2 percent, particularly in North America where all major operators are preparing for 5G,” CEO Borje Ekholm said in a statement.
Networks, which accounts for two-thirds of Ericsson sales, rose 2 percent, year on year, buoyed by 15 percent growth in North America, Ericsson’s largest market. But they fell around 5 percent in South and Southeast Asia, North East Asia and the Middle East and Africa. Europe grew just 1 percent.
Ericsson appears to be benefiting from rising competition among the four top US carriers, which are all racing to be the first to deliver 5G in dozens of American cities. 5G has become a test of US technology leadership in the country’s growing stand-off with China over trade and national security.
Overall, Ericsson’s net sales dipped 1 percent in the second quarter compared to a year ago, reflecting the bottoming out of sharp declines for the mobile equipment industry since 4G sales peaked in 2015 and the expectation of a return to growth in 2020.
Ericsson Chief Financial Officer Carl Mellander said the company was focused on meeting its 2020 profitability targets but warned that quarterly results may still be up and down.
The CFO said that while the first commercial use of 5G would kick off later this year, the business was largely being driven by North America. “But material volumes... we maintain that will be in 2020,” he cautioned.
Ericsson, once the world’s biggest supplier of mobile communications gear, is facing falling spending by telecom operators, weakness in formerly fast-growing emerging markets and stiff competition from bigger telecom equipment players Huawei of China and Nokia of Finland.
The company said it had recently finished an annual cost-cutting program that saved more than 10 billion crowns, which would increasingly result in higher earnings.
Its second quarter gross margin, excluding restructuring charges, was 36.7 percent, versus 35.9 in the first quarter, driven mainly by cost reductions across its business divisions and the ramp-up in sales of its flagship 5G-ready radio gear.
The company has pledged to deliver a gross margin of 37-39 percent and an operating margin of at least 10 percent by 2020 and better than 12 percent heading into the next decade.


Apple China says it will push software update in bid to resolve Qualcomm case

Updated 27 min 26 sec ago
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Apple China says it will push software update in bid to resolve Qualcomm case

  • Apple will carry out the software updates at the start of next week to address the concern
  • A court found Apple infringed two patents held by the chipmaker and banned sales of older iPhone models

SHANGHAI/SAN FRANCISCO: Apple Inc. , facing a court ban in China on some of its iPhone models over alleged infringement of Qualcomm Inc. patents, said on Friday it will push software updates to users in a bid to resolve potential issues.
Apple will carry out the software updates at the start of next week “to address any possible concern about our compliance with the order,” the firm said in a statement sent to Reuters.
Earlier this week, Qualcomm said a Chinese court had ordered a ban on sales of some older Apple iPhone models for violating two of its patents, though intellectual property lawyers said the ban would still likely take time to enforce.
“Based on the iPhone models we offer today in China, we believe we are in compliance,” Apple said.
“Early next week we will deliver a software update for iPhone users in China addressing the minor functionality of the two patents at issue in the case.”
The case, brought by Qualcomm, is part of a global patent dispute between the two US companies that includes dozens of lawsuits. It creates uncertainty over Apple’s business in one of its biggest markets at a time when concerns over waning demand for new iPhones are battering its shares.
Qualcomm has said that the Fuzhou Intermediate People’s Court in China found Apple infringed two patents held by the chipmaker and ordered an immediate ban on sales of older iPhone models, from the 6S through the X.
Apple has said that all of its phone models remained on sale in mainland China and that it had filed a request for reconsideration with the court. All the models appeared to be available to buy on Apple’s China website on Friday.
Qualcomm, the biggest supplier of chips for mobile phones, filed its case in China in late 2017, arguing that Apple infringed patents on features related to resizing photographs and managing apps on a touch screen.