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Ericsson Posts Profit In Q2, Warns On Gross Margin; Stock Dips

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Shares of Ericsson (ERIC) were losing around 5 percent in the morning trading in Sweden after the networking and telecom company warned on its gross margin going ahead. In its second quarter, the company recorded a profit, compared to last year's loss, driven mainly by sales growth in Networks in North America and North East Asia.

The company warned that large 5G deployments and strategic contracts, which are expected to commence in parts of Asia, will gradually impact margins negatively in the short term but strengthen its position in the long term.

In North America, the share of services sales would gradually increase, hurting gross margin.

Börje Ekholm, President and CEO, said, "Continued technology and market investments, especially in 5G, automation and AI, are fundamental for long-term competitiveness and a key part of our focused strategy to strengthen our long-term business and path to reaching our targets for 2020 and 2022."

Regarding the ongoing settlement negotiations with the U.S Securities and Exchange Commission and the U. S. Department of Justice, related to their investigation under the U.S. Foreign Corrupt Practices Act, the company said it is unable to estimate the length of these settlement discussions.

The company's current assessment is that the resolution of these matters would result in material financial and other measures.

For the second quarter, net income was 1.8 billion Swedish kronor, compared to prior year's net loss of 1.8 billion kronor.

Earnings per share were 0.51 krona, compared to loss of 0.58 krona a year ago. Adjusted earnings per share were 0.59 krona, compared to loss of 0.09 krona last year.

Operating income surged to 3.7 billion kronor from last year's 0.2 billion kronor. Operating margin was 6.8 percent, up from 0.3 percent in the prior year.

Adjusted operating income climbed to 3.9 billion kronor from 2 billion kronor last year, and operating margin grew to 7.0 percent from 4.1 percent a year ago.

Gross margin was 36.6 percent, up from 34.8 percent last year. Adjusted gross margin was unchanged at 36.7 percent, with improvements in segment Networks being offset by lower margins in Digital Services and Managed Services.

Sales were 54.8 billion kronor, 10 percent higher than 49.8 billion kronor last year. Sales adjusted for comparable units and currency increased 7 percent.

Networks' organic sales growth was 11 percent from last year, mainly due to 4G and 5G investments in North America and North East Asia.

In Sweden, Ericsson shares were trading at 85.66 kronor, down 5.22 percent.

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