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Ericsson Posts Profit In Q4, Sees Higher Costs In FY20; Stock Dips

ericsson jan24 lt

Swedish telecom equipment maker Ericsson (ERIC) reported Friday a profit in its fourth quarter, compared to loss last year, driven by increased sales. The company further said its North American business experienced a slowdown and that its operating expenses were higher.

Going ahead, the company projects increased costs in fiscal 2020 mainly related to 5G development. Ericsson shares were losing around 7 percent in the trading in Sweden.

According to the company, higher expenses in the quarter reflected the Kathrein business acquisition, increased investments in digitalization and added resources to strengthen security as well as its Ethics and Compliance program.

In 2020, the investments in digitalizing business processes will increase costs and will result in improved productivity in 2021 and beyond, supporting improved margins.

Further, the company said it is confident that its 5G opportunities will be value accretive in the long term, but initial margins are challenging.

Ericsson said it is tracking well towards its targets for 2020 and 2022, but most importantly, it is making progress towards building a stronger company long term.

"For 2020 we expect somewhat higher operating expenses, which will not jeopardize our financial targets,"Ericsson said.

For the fourth quarter, net income attributable to stockholders of the parent company was 4.43 billion Swedish kronor or 1.33 kronor per share compared to a net loss of 6.55 billion kronor or 1.99 kronor per share in the prior year.

Operating income was 6.1 billion kronor, compared to loss of 1.9 billion kronor last year. Adjusted operating income improved to 6.5 billion kronor from 2.6 billion kronor a year ago.

Networks operating margin declined to 14.5 percent due to Kathrein acquisition and increased investments.

Net sales for the fourth quarter rose 4 percent to 66.37 billion kronor from 63.81 billion kronor last year. Sales adjusted for comparable units and currency increased by 1 percent year-over-year.

Due to the uncertainty related to an announced operator merger, the company saw a slowdown in North American business in the quarter, resulting in North America having the lowest share of total sales for some time.

The negative growth in North America was more than offset by growth in Asia and the Middle East.

Further, the company said its board will propose a dividend for 2019 of 1.50 kronor per share to the Annual General Meeting, compared to 1.00 kronor per share paid in 2018.

In Sweden, Ericsson shares were trading at 78.90 kronor, down 6.7 percent.

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