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Ericsson Q2 Profit Climbs, Says Longer-term Positive; Stock Up

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Shares of Ericsson (ERIC) were gaining around 8 percent in the morning trading in Sweden after the telecom equipment maker reported Friday higher profit and sales in its second quarter with limited impact from Covid-19 pandemic.

Looking ahead, the company maintained its Group targets for 2020 and 2022 with the current visibility, even though the effects of Covid-19 create uncertainties. The company said it remains positive on the longer-term outlook.

For fiscal 2020, Ericsson now said that increased R&D costs, from accelerated R&D investments, along with lower sales, are likely to result in a delay of some quarters in reaching the 2020 target of low single-digit margin for Digital Services.

Further, 2022 operating margin target of 10 percent to 12 percent remains firm.

Regarding its 5G plans, President and CEO Börje Ekholm said the company is ready to deliver on the promises of 5G, based on its strong 5G portfolio and a resilient balance sheet.

The company noted that there is a strong demand for its cloud-native and 5G portfolio, and has recorded several important tier 1 customer wins in 5G Core that will generate revenues in 2021 and beyond.

Ekholm added, "As critical national infrastructure, 5G will be a key determinant for long-term competitiveness of the general economy, and act as a stimulant to accelerate economic growth, attract future investments and speed up technology innovation. I believe Europe must prioritize actions to incentivize investments in the digital infrastructure, to include lowering the cost and speeding up the availability of spectrum."

For the second quarter, Ericsson's net income rose 40 percent to 2.6 billion Swedish kronor from 1.8 billion kronor last year. On a per share basis, earnings were 0.74 kronor, up 45 percent compared to 0.51 kronor in the prior year.

Operating income increased 3 percent to 3.9 billion kronor from last year's 3.7 billion kronor. Operating margin improved to 6.9 percent from 6.8 percent last year. Adjusted operating income was 4.5 billion kronor, compared to prior year's 3.9 billion kronor driven by improvements in Digital Services segment.

Adjusted operating margin grew to 8.2 percent from 7 percent last year.

Gross margin improved to 37.6 percent from 36.6 percent last year, and adjusted gross margin improved to 38.2 percent from 36.7 percent a year ago.

Sales for the quarter edged up 1 percent to 55.6 billion kronor from 54.8 billion kronor in the previous year. Sales adjusted for comparable units and currency were flat year-over-year. Networks sales increased 4 percent from last year.

In Sweden, Ericsson shares were 94.70 kronor, up 8.06 percent.

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