At the time of writing, Ericsson shares were down 8% on the day, as the company revealed its underwhelming Q4 and full-year results for 2019. The smaller than expected rise in Q4 earnings was a weak performance against other 5G stocks, and appears to be as a result of a slowdown in US business and higher costs in areas such as 5G.
Ericsson has been boosted by the roll-out of super-fast 5G networks, and has benefited specifically in the US over the past year. However, high-margin US sales significantly dropped in Q4.
“Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in Q4, resulting in North America having the lowest share of total sales for some time,” Ericsson’s Chief Executive Borje Ekholm said. “However, the underlying business fundamentals in North America remain strong.”
The company had mentioned previously that the proposed merger with Sprint would have impacted its spending levels. And Ericsson hoped that sales growth in Asia and the Middle East would make up for the US slowdown, but costs were higher and overall gross margin fell from Q3, dropping to 37.1% from 37.8%.
What the results mean
Whilst Ericsson’s Q4 results may have been modest, they show strong potential for future growth this year, as the 5G momentum grows. Sales increased by 4% with gross margin being 37.5%. And one important thing investors might take note of is the generous dividend increase of 50%. This highlights company confidence and strong figures.
However, Eckholm remains positive about the future, “We are tracking well towards our targets for 2020 and 2022, but most importantly, we are making progress towards building a stronger company long term.”