Ericsson said its restructuring process, which made the company write down assets and let go of personnel, started showing positive results in the first quarter, with still lower revenues, but higher margin and profit figures, according Telecompaper. The company reduced its total workforce by over 3,000 in the quarter, bringing the full number to almost 18,000 since reductions were started in July. The annual run-rate of savings has so far reached SEK 8.5 billion, and the goal is to reach SEK 10 billion by mid-year.
The company noted that the cornerstone of its strategy is to invest in R&D in order to boost the company’s leadership and generate higher gross margins. This means Ericsson will continue to increase investments in Networks to lead in 5G. In Digital Services, money will go the company’s new cloud-native portfolio and to boost efficiency by changing some ways of working. At Managed Services, the focus will remain on machine intelligence, automation and analytics.
Revenues fell 9 percent from the year before to SEK 43.4 billion in Q1, pulled down by lower numbers in North East Asia, South East Asia, Oceania and India. Other market areas showed growth.
The gross margin improved to 34.2 percent from 15.7 percent the year before. Excluding restructuring charges, the margin went to 36 percent from 18.7 percent, moving well towards the company’s target of 37-39 percent by 2020. The operating loss narrowed to SEK 0.3 billion from a loss the year earlier of 11.3 billion. The figure excludes restructuring charges of SEK 0.9 million. Charges the year before amounted to SEK 9.5 billion. The net loss also narrowed sharply to SEK 0.7 billion from 10.0 billion, with diluted loss per share reducing to SEK 0.25 from a loss of 3.08 the year before.
Cash flow from operating activities rose to SEK 1.6 billion from a negative 1.5 billion, while free cash flow advanced to SEK 0.3 billion from negative 3.2 billion. Net cash increased to SEK 35.6 billion from 28.3 billion.
At Networks, the gross margin improved to 40 percent form 35 percent. It went up to 41 percent from negative 25 percent at Digital Service, supported by cost reductions mainly in service delivery. Still, the operating profit at the segment remains challenging. At Managed Services, the gross margin went up to 9 percent form a negative 7 percent, helped by efficiency gains in service delivery and customer contract reviews, resulting in a positive operating profit.
At Emerging Business and Other, Ericsson is pushing investments to growth areas such as IoT and Unified Delivery Network (UDN). The businesses showed a loss of SEK 0.5 billion in the quarter, despite improved operating profits at Media Solutions and Red Bee Media (combined). The company expects to close the announced sale of Media Solutions by the end of the third quarter.
Looking ahead, Ericsson will continue to put its attention on 5G, with initial business discussions focusing on enhanced mobile broadband. In general, the company expects the Radio Access Network (RAN) equipment market to decline by 2 percent for the full year and by a 2 percent CAGR in the period 2018-2022. In 2018, the Chinese market is expected to decline due to reduced LTE investments, while there is positive momentum in North America. Specifically, Ericsson still sees restructuring charges for the full year at SEK 5-7 billion, and slightly higher in the second quarter, compared to the first.
