Ericsson reports decline in Q1 2024 sales but improves gross margin and cost efficiencies

Ericsson has reported a decrease in organic sales by 14% year-over-year in the first quarter of 2024, with a significant 19% drop in Networks sales, as total reported sales decreased to SEK 53.3 billion from SEK 62.6 billion the previous year. Despite the downturn in sales, Ericsson achieved an improved gross margin excluding restructuring charges, which rose to 42.7% from 39.8%. This improvement was supported by a competitive product portfolio, enhanced commercial discipline, strategic cost actions, and increased Intellectual Property Rights (IPR) licensing revenues. The reported gross margin also saw a rise, reaching 42.5%.

The company’s EBITA, excluding restructuring charges, totaled SEK 5.1 billion, marking a margin of 9.6%, which included a one-time gain of SEK 1.9 billion. This is an increase from SEK 4.8 billion in the prior year. Net income also saw a significant improvement, reaching SEK 2.6 billion, up from SEK 1.6 billion, with diluted earnings per share (EPS) rising to SEK 0.77 from SEK 0.45. Free cash flow before mergers and acquisitions reflected a substantial positive shift to SEK 3.7 billion, compared to a negative SEK 8.0 billion in the previous year, driven by better management of working capital.

Ericsson’s President and CEO, Börje Ekholm, emphasized the company’s strategic focus on strengthening its leadership in mobile networks, pursuing a targeted expansion in enterprise, and driving a cultural transformation. Despite challenging market conditions, which saw continued cautious investment from customers, Ericsson maintained its leading market position and reported solid expansion in gross margins. “We will continue to proactively optimize the business, including through strategic cost-saving measures, to ensure Ericsson is best positioned to increase shareholder value,” stated Ekholm.

Looking forward, Ericsson anticipates further challenges in the RAN market, projecting a decline through the end of 2024, influenced by ongoing cautious customer investments and a normalizing pace of investment in India. However, the company expects sales to stabilize in the latter half of the year, aided by recent contract wins and normalized customer inventory levels in North America. Ericsson’s enterprise strategy will focus on leveraging network capabilities to boost telecom industry revenue growth, thereby supporting industry investment levels in the longer term.

Ericsson’s resilience in improving its financial metrics amidst declining sales demonstrates a robust strategic framework that effectively balances cost management with innovation. The company’s ability to enhance gross margins despite reduced revenue streams suggests a strong competitive position and effective operational adjustments. Looking forward, Ericsson’s strategic initiatives, particularly in enterprise and IPR licensing, are likely to catalyze long-term growth, even as immediate market conditions remain challenging.