Ericsson’s share price has jumped 10%, as the company - buoyed by the news that Huawei 5G kit must be removed from the UK from 2027 - announced its second quarter figures today, which include a 4% increase in network sales, despite the significant effects of the coronavirus pandemic.
“We continue to put safety of our people as first priority, and more than 80% of our employees are currently working from home."
Ericsson Q2 financial report.
“The human toll caused by Covid-19, directly and indirectly through a weak economy, is increasingly clear,” Ericssons financial statement explains. “We continue to put safety of our people as first priority, and more than 80% of our employees are currently working from home. Despite the difficult environment we delivered a solid result. Q2 organic sales were flat and gross margin improved to 38.2% YoY, including negative effects from strategic contracts.”
Strategic contracts
Strategic contracts, especially those in China, were flagged up by Ericsson as a cause for confidence amongst investors, and it will no doubt be looking to expand on key partnerships, such as winning an 11.5% stake in a recent $52bn China Mobile tender (the only European company to do so).
"The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2."
Ericsson Q2 financial report.
“Networks grew by 4% organically, and the gross margin was 40.5%, absorbing a larger share of strategic contracts including 5G volumes in Mainland China where we also took an inventory write-down,” the statement reads. “The strengthened market position in Mainland China is strategically important as this market is expected to be a driver of critical future requirements and provide us with important scale. The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2.”
Elsewhere, strong investments in R&D have resulted in the company’s patent licensing business continuing to perform well, due to its impressive IPR portfolio, much of which has taken place in the 5G market with “proven performance and cost of ownership benefits for our customers,” says Ericsson.
“We have continued to increase our market share in several markets by leveraging our competitive product portfolio,” the Q2 report says. “Profitability in earlier awarded strategic contracts has improved according to plan. We consider strategic contracts to be a natural part of the business and we will stop our forward looking commentary unless there is an extraordinary impact.”
To top off a great week for the company, it also announced earlier this week that it would be working in Oman to help deliver 5G, as part of a multi-year partnership. And this has resulted in the company's share price rising from 87.64 SEK to 96.86 SEK in just one day.
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